08ASTANA2291, KAZAKHSTAN: KULIBAYEV ON THE STATE OF THE ECONOMY,

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Reference ID Created Released Classification Origin
08ASTANA2291 2008-11-21 10:24 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Astana

VZCZCXRO6567
OO RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW
RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNEH RUEHNP RUEHPOD RUEHPW RUEHROV
RUEHSR RUEHVK RUEHYG
DE RUEHTA #2291/01 3261024
ZNR UUUUU ZZH
O 211024Z NOV 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3885
INFO RUCNCIS/CIS COLLECTIVE 0827
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0226
RUEHKO/AMEMBASSY TOKYO 0936
RUCNDT/USMISSION USUN NEW YORK 2062
RUEHNO/USMISSION USNATO 2394
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 0394
RUEKJCS/SECDEF WASHDC 0309
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL

UNCLAS SECTION 01 OF 03 ASTANA 002291 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC, SCA/PPD, EUR/CARC 
STATE PLEASE PASS TO USTDA DAN STEIN 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EAGR EPET EINV SOCI KPAO RS IR AJ
TX, KZ 
SUBJECT:  KAZAKHSTAN:  KULIBAYEV ON THE STATE OF THE ECONOMY, 
HYDROCARBON TRANSPORTATION 
 
1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
2.  (SBU) SUMMARY:  On November 20, Timur Kulibayev, newly-appointed 
Deputy Chairman of the Samruk-Kazyna Sovereign Wealth Fund, gave the 
Ambassador his assessment of the domestic impact of the global 
financial crisis and an update on new oil and gas transportation 
projects.  He said that on November 25, the Government of Kazakhstan 
would announce new details of its bailout plan, including $3.5 
billion in assistance to the banking sector, $1 billion for the 
agricultural sector, reduced interest rates for small and medium 
enterprises seeking loans, and fixed tariffs for power generation. 
Kulibayev said both the Prikaspiskii and trans-Caspian gas pipelines 
projects were essentially political projects and were not commercial 
priorities for Kazakhstan.  When asked about Kazakhstan's plans to 
ship crude to Iran, Kulibayev said he was well aware of the U.S. 
embargo and said the government of Kazakhstan is not actively 
pursuing that option.  END SUMMARY. 
 
SAMRUK-KAZYNA CONSOLIDATES RESOURCES 
 
3.  (SBU) Timur Kulibayev is the billionaire son-in-law of President 
Nazarbayev and was appointed to be Deputy Chairman of the 
Samruk-Kazyna National Welfare Fund on October 17.  He is 
simultaneously head of the business association KazEnergy, which 
includes all major oil companies doing business in Kazakhstan. 
Kulibayev told the Ambassador that the government merged the Samruk 
state assets holding company with the Kazyna Sustainable Development 
Fund in October to focus government resources on mitigating the 
effects of the global financial crisis.  According to Kulibayev, 
Samruk-Kazyna will take over additional government-owned companies, 
including several in the mining and mortgage-banking sector, and is 
being provided with $10 billion from the National (Oil) Fund to 
finance various stabilization measures, which reportedly will 
include its purchase of large stakes in key Kazakhstani banks. 
(NOTE:  An additional $5 billion in capital is being made available 
directly to banks through a reduction of their reserve requirements. 
 END NOTE).  Samruk-Kazyna will also manage an "asset stabilization 
fund," financed with $433 million from the state budget, to buy up 
bad loans from banks. 
 
OUTLINE OF A BAILOUT PLAN 
 
4.  (SBU) On November 25, the government will announce additional 
measures to respond to the global financial crisis.  For example, 
Kulibayev indicated that the National Fund would: 
 
-- invest $3.5 billion to take equity positions in Kazcommertsbank, 
BankTuranAlem, Halyk Bank, and Alliance Bank; 
 
-- lower the interest rate for small and medium enterprises to 
access credit from 18% to 12.5%; 
 
-- for the first time since independence, create a strategic reserve 
of agricultural staples such as wheat, meat, vegetable oil, and 
sugar; 
 
-- invest an additional $1 billion in food security, including 
upgrades to food storage and transportation infrastructure; and 
 
-- provide $3 billion to the construction sector. 
 
THE GENESIS OF THE CRISIS 
 
5.  (SBU) Kulibayev told the Ambassador that the financial crisis in 
Kazakhstan began with the banking crisis in August 2007.  According 
to Kulibayev, local banks borrowed externally and refinanced 
repeatedly until they faced a severe liquidity shortage with the 
collapse of external lending.  "Fortunately," he remarked 
ironically, "one advantage we have over the United States is that 
our stock exchange is not well developed," so the credit crunch was 
 
ASTANA 00002291  002 OF 003 
 
 
not exacerbated by a dramatic drop in share values.  According to 
Kulibayev, Kazakhstani banks carry a total of $40 billion in 
commercial debt, 50% of which is in construction, housing and other 
mortgage loans, but he was confident that the banks could meet all 
outstanding debts and even predicted that they would resume lending 
within six months.  (NOTE:  Timur and Dinara Kulibayev reportedly 
each own 50% of the Almex h
olding group, which in turn owns Halyk 
Bank, one of the four banks in which the government will take a 25% 
equity stake.  END NOTE). 
 
INFLUENCE OF THE RUSSIAN MEDIA 
 
6.  (SBU) Kulibayev calmly informed the Ambassador of the 
government's plans to manage the crisis and explained that the top 
priority now is to preserve stability and prevent panic.  He noted 
that most Kazakhstanis get their news from Russian television and 
tend to follow the example of Russia.  "If they see Russians on TV 
buying food in a panic, they'll do the same.  We want to avoid 
that," he explained. 
 
RETURN TO A COMMAND ECONOMY? 
 
7.  (SBU) When the Ambassador asked if the government's sizeable 
investments in private industry and its consolidation of state-owned 
assets could lead to a return to a command economy, Kulibayev 
paused, then turned the tables by saying, "The United States used to 
set the standard for all free-market economies.  Now, the U.S. 
government is directly involved in the U.S. economy and has a huge 
influence over the private sector."  He then turned philosophical, 
noting that it will take several years to determine the proper role 
for the government in the national economy.  "It is clear that we 
need to make some changes to the regulatory institutions in order to 
get the balance right," he said.  Kulibayev candidly admitted that 
the government could not do any long-range planning in the current 
environment, even with the help of world-class advisors from JP 
Morgan, Citigroup, McKinsey & Company, and the Boston Consulting 
Group.  He estimated it would take one to two years before things 
settled down.  He did say that under the government's most 
pessimistic scenario, they will draw down on the country's oil fund 
and hard currency reserves, while under their optimistic scenario, 
the government planned to use the revenue from the oil and gas to 
diversify the economy away from the extractive industries. 
 
NEW ENERGY INITIATIVES UNDER REVIEW 
 
8.  (SBU) Kulibayev indicated that several major initiatives in the 
energy sector might have to be postponed, including development of a 
new national petrochemical industry, an agricultural fertilizer 
industry, and a state-owned mining holding company.   He said that 
existing projects for the Batumi oil terminal in Georgia and the 
downstream assets of Rompetrol in Europe would be unaffected, but 
said future expansion projects would likely be put on hold. 
 
TRANSPORTATION PRIORITIES 
 
9.  (SBU) Kulibayev said the government has three main options for 
transporting its oil and gas:  Russia, China, and Azerbaijan.  He 
said Russia has "always been a reliable partner" and is "our first 
priority."  Next, he listed China, with which Kazakhstan shares a 
long border and is constructing gas and oil pipelines.  He then 
referred to the recent trans-Caspian transportation agreement signed 
between Kazakhstan and Azerbaijan on November 14 and noted that 
shipment of oil from Baku onward, including the Baku-Supsa pipeline, 
is also an important transportation option for Kazakhstan. 
Kulibayev said KazMunaiGas and the international oil companies were 
content to ship oil westward via tanker rather than raise the 
difficult issues of Caspian Sea delimitation with construction of a 
pipeline.  "It's funny," he said.  "These projects all have undersea 
pipelines and they can get very close to each other, but cannot 
connect." 
 
ASTANA 00002291  003 OF 003 
 
 
 
PRIKASPISKII PIPELINE "POLITICAL" 
 
10.  (SBU) Kulibayev was openly skeptical of the proposed 
Prikaspiskii gas pipeline, calling it a political, not commercial, 
project that exists only on paper.  He was equally dismissive of the 
proposed trans-Caspian pipeline, calling it a "virtual project" that 
would not move forward without the agreement of all littoral states, 
particularly Iran and Russia, on the delimitation of the Caspian 
Sea.  Kulibayev further doubted whether Turkmenistan would have gas 
resources sufficient to supply the pipeline after meeting current 
obligations to China, Russia, and Iran.  He noted that Kazakhstan 
already has existing gas pipelines with a capacity of 10 billion 
cubic meters (bcm), waiting to be filled.  "A new pipeline with a 30 
bcm capacity does not make sense," he said. 
 
THE SHORTEST ROAD 
 
11.  (SBU) When asked about Kazakhstan's plans to ship crude to 
Iran, Kulibayev responded quietly, "The route through Iran is the 
fastest way to reach the Asian market.  And Iran is more politically 
stable than, say, Afghanistan.  But we are well aware that the 
United States is opposed to shipments through Iran, so we are not 
actively pursuing that option."  He then added, "We will wait and 
see, maybe there will be a change in this policy with the new 
administration in Washington." 
 
12.  (SBU) COMMENT:  Kulibayev was calm, cool and collected 
throughout the meeting, pausing thoughtfully to ponder difficult 
questions and switching from Russian to English with ease.  During 
the meeting, he eagerly went to a wall map to show the Ambassador 
the location of planned gas pipelines and when the meeting 
adjourned, he invited the Ambassador, with genuine pride for his 
capital city, to view Astana from his office on the 16th floor of 
the KazMunaiGas building.  He clearly welcomed the opportunity to 
establish a strong and open relationship with the Ambassador and 
stressed the importance of U.S. investors and the U.S. government to 
Kazakhstan's continued development.  Noting that a crisis often 
brings opportunities as well as challenges, he said, "Perhaps now 
the euphoria will die down and we will be more realistic and better 
prepared for the difficult decisions that lie ahead."  END COMMENT. 
 
HOAGLAND

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