Category Archives: CONFIDENTIAL//NOFORN

08ASTANA371, KAZAKHSTAN: ADVANCING THE U.S. POSITION FOR CHANGE

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Reference ID Created Released Classification Origin
08ASTANA371 2008-02-25 09:22 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXYZ0000
PP RUEHWEB

DE RUEHTA #0371 0560922
ZNY CCCCC ZZH
P 250922Z FEB 08
FM AMEMBASSY ASTANA
TO SECSTATE WASHDC PRIORITY 1839

C O N F I D E N T I A L ASTANA 000371 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN M. O'MARA 
 
E.O. 12958: DECL: 02/25/2018 
TAGS: PGOV PREL CU KZ
SUBJECT: KAZAKHSTAN: ADVANCING THE U.S. POSITION FOR CHANGE 
IN CUBA 
 
REF: STATE 18317 
 
Classified By: DCM KEVIN MILAS FOR REASONS 1.4(B) AND (D) 
 
(C) DCM delivered reftel demarche to Talgat Kaliyev, MFA 
Americas Section Director, on February 25.  Kaliyev promised 
to share the information and said that he believes that the 
U.S. "will find the right approach" with Cuba. 
ORDWAY

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07ASTANA2586, KASHAGAN: THUS FAR, COMMERCIAL DISPUTE, NOT

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Reference ID Created Released Classification Origin
07ASTANA2586 2007-09-18 23:57 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO1192
RR RUEHDBU
DE RUEHTA #2586/01 2612357
ZNY CCCCC ZZH
R 182357Z SEP 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 0715
INFO RUCNCIS/CIS COLLECTIVE 0259
RUEHAK/AMEMBASSY ANKARA 2101
RUEHBUL/AMEMBASSY KABUL 0353
RUEHNE/AMEMBASSY NEW DELHI 0474
RUEHRO/AMEMBASSY ROME 0365
RUCPDOC/DEPT OF COMMERCE WASHDC

C O N F I D E N T I A L SECTION 01 OF 03 ASTANA 002586 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SCA/CEN 
DEPT PASS TO OPIC - BALLINGER 
DEPT PASS TO TDA FOR STEIN, EXIM, FOR GLAZER 
DEPT PASS TO AID - EE PHILIPS/RUSHING 
USDOC FOR 4231/ITA/MAC/MLONDON, 4201/BISNIS 
USDOC FOR 6110/ITA/TD/BI/RHALPERN 
ANKARA FOR CFC 
 
E.O. 12958: DECL: 09/19/2017 
TAGS: ECON EIND ENRG EPET EFIN EINV KZ
SUBJECT: KASHAGAN: THUS FAR, COMMERCIAL DISPUTE, NOT 
SAKHALIN II 
 
Classified By: AMBASSADOR ORDWAY FOR REASONS 1.4(B) AND (D) 
 
1. Summary: (SBU) Spurred on by further delays and rising 
costs at Kashagan, the Government of Kazakhstan (GOK) has 
made clear to the international consortium developing the 
huge oil field of its dissatisfaction with the current 
profit-sharing scheme.  The GOK leadership has indicated that 
it seeks a significant increase in Kazakhstan's share of 
profits under the production sharing agreement and immediate 
compensation "in the billions of dollars" for the latest 
delays. In the interim, development at Kashagan is suspended 
for three months because of environmental violations at the 
site.  With talks underway, both government officials and oil 
company representatives characterize the current conflict as 
a commerical dispute likely to be resolved.  End Summary 
 
Kashagan: Further Delays, Rising Costs 
-------------------------------------- 
 
2. (SBU) In June, the North Caspian Project consortium Agip 
KCO officially notified the GOK of delays and cost overruns 
on Kashagan, one of the world's largest oil projects, with 
estimated reserves of 13 billion barrels.  Commercial 
production is to be delayed from 2008 to 2010 and the costs 
to increase from $56 billion to $136 billion over the life of 
the forty-year contract.  Costs for the first phase of 
development will nearly double, from $10 billion to $19 
billion. 
 
 
3. (SBU) The June announcement was only the latest setback on 
the Kashagan project.  Originally, commercial production was 
to have started in 2005. In February 2004, AGIP KCO and the 
GOK agreed to delay production until 2007-2008. At the time, 
AGIP paid the GOK $150 million for the delays in commercial 
production. Some experts have criticized Eni, the project's 
operator (the consortium also includes Exxon Mobil, Shell, 
Total, Conoco Phillips, and IMPEX) for an overly exuberant 
forecast of costs and production schedules for an extremely 
difficult project. 
 
Kashagan Shut Down, New Terms Sought 
------------------------------------ 
 
4. (SBU) Agip's difficulties have continued through the 
summer.  On August 27, the Ministry of Environmental 
Protection declared that it was suspending work at Kashagan 
for three months due to environmental violations.  Serzhan 
Duysenbayev, acting Chairman of the Finance Ministry's 
Customs Control Committee, announced that several criminal 
cases have been initiated against Agip's affiliates for 
evading customs duties.  The Ministry of Emergency Situations 
stated that it will shut down Agip's oil and gas processing 
facility, which is under construction, for non-compliance 
with fire norms. 
 
5. (SBU) Most significantly, Agip has faced a GOK clearly 
displeased with the latest developments and dissatisfied with 
the terms of its production sharing agreement (PSA).  Prime 
Minister Masimov stated publicly that "the change in the 
terms of the Kashagan development means the contract's 
change." Kazakhstani officials have declared in discussions 
that they seek to raise Kazakhstan's share of profits under 
the PSA from 10% to 40%.  The GOK has also bemoamed the 
near-term detrimental effects of further delays.  According 
to Vice-Minister of Finance Yergozhin, the GOK had been 
expecting $1.2 or 1.3 billion in revenue from the project 
starting in 2008. Kazakhstan, he told the media, is expecting 
compensation in "the range of billions of dollars." (Note: 
Under the terms of the PSA, Agip is not obligated to make 
payments to the GOK until development costs are recovered. 
End Note) 
 
6. (SBU)  Eni's position as operator of the Kashagan project 
has also been made tenuous by the delays and cost overruns. 
At the Eurasia Energy Forum in Astana on September 6, Masimov 
suggested a larger role for KazMunayGas. "In line with our 
 
ASTANA 00002586  002 OF 003 
 
 
targets and requests voiced by the president of our country, 
KazMunayGas has to become a second operator of the project. 
If consortium members decline Kazakhstan's terms, we have 
plan 'B,' about which I will tell you later," he said. 
Yergozhin stated to the media that Kazakhstan would "look 
positively" on a proposal to put a local company in control 
or to operate the project jointly. 
 
7. (SBU) On September 11, MasimNO)6nnounced that negotiations with 
Agip will last until October 22. 
 
8. (SBU) On September 12, Yerlan Nigmatulin, head of the 
Mazh
ilis (lower house of parliament) Committee on Ecology and 
Mineral Resources, stated that the Mazhilis is considering an 
amendment to the "Law on Subsoil and Subsoil Use." The 
proposed amendment gives the GOK the right to annul or amend 
contracts in cases of "national security threats caused by 
investors' actions." The new law would apply retroactively. 
The basis for the move was "the Kashagan conflict", he said. 
Nigmatulin expects the amendments to be adopted by October 
22, the end of the 60 day period of "friendly negotiations" 
between the GOK and Agip KCO. 
 
 
GOK: Foreign Investors Have No Cause For Concern 
--------------------------------------------- --- 
 
9.(C) In a meeting with the Ambassador, Prime Minister 
Masimov emphasized that Kazakhstan is "not trying to push 
foreigners out."  Masimov described Kashagan as a commercial 
dispute, noting that according to GOK analysis Kazakhstan 
will net nothing under the current PSA because of the rising 
costs. Masimov also said that "everyone agrees that Eni has 
been totally incompetent." Nevertheless, no criminal charges 
will be brought, and foreign investors have no cause for 
concern.  Masimov laughed at a rumor that Lukoil might take 
the lead at Kashagan.  In a separate meeting with the DCM, 
Minister of Finance Yergozhin said that the environmental 
inspections at Kashagan have been part of normal 
investigations. 
 
10. (C) Representatives from Conoco Philips told the 
Ambassador that the GOK is seeking compensation outside of 
the PSA.  They were not panicked about the conflict, saying 
that everyone agrees it will be settled and noting that, in 
comparison to Russia, they still feel welcomed in Kazakhstan 
("it is always refreshing to come here").  Nick Olds, 
Conoco-Philips Kazakhstan Country Manager, did not refute 
criticisms that have been levelled at Eni.  "Eni is not doing 
a lot to redeem themselves," he said. 
 
11. (C) In a September 17 conversation with the Ambassador, 
First Vice President of KMG Maksat Idenov, who is now the 
GOK's chief negotiator with the consortium, acknowledged that 
the GOK cannot, under the terms of the PSA, change the 
operator.  He noted, however, that the companies in the 
consortium can and are now interested in doing so.  Idenov 
played down the September 12 expulsion of a Conoco Philips 
representative from a GOK-consortium meeting.  The 
Kazakhstani side, Idenov explained, had asked consortium 
members to send to the meetings executives empowered to make 
decisions ("not notetakers") which, he asserted, Conoco 
Philips failed to do.  Speaking to the Ambassador, a Conoco 
Philips representative blamed the episode on a 
misunderstanding of the company's corporate structure. 
 
12. (C) Comment: The GOK has strong reason to be displeased 
with events at Kashagan.  Despite the public fireworks, 
however, we expect the matter will be resolved in a manner 
acceptable to all parties, although likely after the October 
22 date established for the end of negotiations.   While the 
GOK will seek better terms, and is almost certain to receive 
them, it is unlikely to make any rash moves that will 
 
ASTANA 00002586  003 OF 003 
 
 
negatively impact the foreign investor climate in Kazakhstan, 
particularly when Kazakhstan is aggresively seeking 
investment in its non-extractive sectors.  Furthermore, 
Kazakhstan has generally proven itself a reliable partner in 
the energy sector; while Kashagan has gathered most of the 
recent publicity, the country's two other huge oil projects, 
Tengiz and Karachaganak, continue to proceed smoothly and to 
the satisfaction of all parties involved. End Comment 
ORDWAY

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07ASTANA1668, CORRECTED COPY: KAZAKHSTAN: BOUCHER PRESSES

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Reference ID Created Released Classification Origin
07ASTANA1668 2007-06-18 09:41 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO8169
PP RUEHBI RUEHCI RUEHDBU RUEHLH RUEHPW
DE RUEHTA #1668/01 1690941
ZNY CCCCC ZZH
P 180941Z JUN 07 ZDK
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 9826
INFO RUCNCIS/CIS COLLECTIVE 0209
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 04 ASTANA 001668 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
DEPT PLEASE PASS USTR. 
 
E.O. 12958: DECL: 06/17/2017 
TAGS: PGOV PREL KZ ECON ENRG
SUBJECT: CORRECTED COPY: KAZAKHSTAN: BOUCHER PRESSES 
POLITICAL REFORM WITH GOVERNMENT, OPPOSITION 
 
REF: A. ASTANA 1357 
     B. ASTANA 1033 
     C. ASTANA 1243 
     D. ASTANA 1454 
     E. ASTANA 986 
     F. ASTANA 1110 
     G. ASTANA 1415 
 
Classified By: DCM Kevin Milas; reasons 1.4 (b) and (d). 
 
1. (C) Summary:  In June 5-6 meetings with Assistant 
Secretary Boucher, Kazakhstani government officials defended 
 
SIPDIS 
recent constitutional amendments as far-reaching, while 
acknowledging the need for further reform.  Opposition 
leaders, by contrast, called the reform package a "step 
backward," arguing that even if the changes would have little 
immediate effect, on balance they strengthened presidential 
power.  Both the government and opposition are anticipating 
that parliamentary elections will be held in the near-term, 
and agreed with Boucher's assessment that the quality of the 
elections would be a good indicator of the government's will 
to undertake real reform.  The opposition identified the 
formation of representative electoral commissions as a key to 
assuring fair elections, and warned that the ongoing process 
of choosing commission members was heavily biased in favor of 
the ruling "Nur Otan" party. 
 
2. (C) Summary (continued).  On the economic front, Prime 
Minister Masimov highlighted the "thirty corporate leaders" 
program as the centerpiece of the government's 
diversification program. Masimov indicated a desire to 
finalize bilateral World Trade Organization accession 
negotiations during his planned visit to the U.S. in 
September; lead  negotiator Aitzhanova asked that the U.S. 
defer the "state trading enterprises" issue for multilateral 
negotiations.  While Foreign Minister Tazhin reiterated that 
Kazakhstan's only role in the gas pipeline projects announced 
last month in Turkmenistan was as a "transit country," 
neither he nor Masimov signaled strong support for a 
Trans-Caspian gas pipeline; both men indicated a preference 
for compressed natural gas shipments across the Caspian. 
Government officials downplayed any disruption caused by the 
Rakhat Aliyev case, while casting it as an exercise in the 
"rule of law"; opposition and civil society leaders suggested 
that Aliyev's abuses had alienated important factions of 
Kazakhstan's economic / political elite, forcing Nazarbayev's 
hand.  End summary. 
 
3. (SBU) During a June 5-6 visit to Kazakhstan, Assistant 
Secretary of State for Central and South Asian Affairs 
 
SIPDIS 
Richard Boucher, accompanied by Senior Advisor Caitlin Hayden 
and Charge d'Affaires a.i., met with the following government 
officials: Prime Minister Karim Masimov, Foreign Minister 
Marat Tazhin, State Secretary Kanat Saudabayev, Presidential 
Administration Head Adilbek Dzhaksybekov, Senate Speaker 
Kasymzhomart Tokayev, and Security Council Secretary Berik 
Imashev.  Boucher also met with opposition politicians Bulat 
Abilov, Tulegen Zhukeyev, Oraz Zhandosov, Galymzham 
Zhakiyanov, and Zharmakhan Tuyakbay; as well as 
representatives of U.S. businesses; editors and political 
scientists associated with "Mysl," a prominent political 
science journal; and a group of U.S. exchange program alumni. 
Assistant Secretary Boucher also toured the future site of 
the Central Asian Regional Information and Coordination 
Center. 
 
Government Defends Amendments; Acknowledges Need for More 
Reform 
--------------------------------------------- ------------- 
 
4. (C) Dzhaksybekov mounted the most vigorous defense of the 
constitutional reforms, describing them as far reaching. 
Dzhaksybekov highlighted in particular the new role of 
maslikhats (regional and local legislatures) to approve akims 
(executive branch leaders); the transfer of sanction of 
arrest from the procuracy to the judiciary; state financing 
for political parties and non-governmental organizations; and 
Mazhilis approval of the Prime Minister and cabinet. 
Kazakhstan is establishing a system of political checks and 
balances that maintains strong vertical controls to ensure 
stability, he said.  While "we don't think there will be much 
change," Dzhaksybekov acknowledged, "we have laid the 
foundation for the opposition to expand in the future." 
 
5. (C) Dzhaksybekov explained that four pieces of legislation 
 
ASTANA 00001668  002 OF 004 
 
 
must be passed immediately in order to implement 
constitutional changes:  amendments to the laws on 
parliament, the government, the president, and elections. 
Dzhaksybekov indicated that, while a new media law was not 
required to implement the changes, one proposed by the 
Congress of Journalists was pending and would eventually be 
approved. &#
x000A; 
6. (C) Dzhaksybekov bridled at Boucher's observation that, in 
the West, the decision to lift term limits on President 
Nazarbayev had overshadowed the rest of the reform package in 
the public eye.  Dzhaksybekov termed the focus on the term 
limits "offensive," while Tazhin pointed out that the term 
limit amendment represented "a legal framework, not a 
political decision," adding that Nazarbayev's decision 
whether to run again would depend both on the political 
situation and on Nazarbayev's health.  The fundamental reason 
for the term limit change, Tazhin said, was to dampen 
political competition among aspirants to the presidency. 
Tazhin also spoke frankly about the origins of the amendments 
during a one-on-one meeting: "It was proposed in parliament," 
he told Boucher privately, "but we all know where it came 
from." 
 
7. (C) Both Dzhaksybekov and Tazhin reiterated the 
government's unwavering commitment to its bid to chair the 
Organization for Security and Cooperation, reviewing familiar 
arguments for Kazakhstan's candidacy, including the 
importance of setting an example for others in the region. 
"It is our decision and we won't give up," Dzhaksybekov 
declared, adding that Kazakhstan would do anything the U.S. 
wanted on reform "as long as it does not interfere with out 
strategic interests."  Tokayev also assured Boucher that the 
reform package was just the beginning: "the process will go 
on," he said. "The window has been opened by the amendments." 
 
8. (C) Dzhaksybekov and Saudabayev sounded Boucher out on the 
idea of holding parliamentary elections in the short-term, 
suggesting that elections would be a logical follow-on to the 
reforms, while being clear that no decision had yet been 
taken.  Dzhaksybekov indicated that the decision would depend 
"on the law and on the President's negotiations with the 
Mazhilis and the Senate," as Nazarbayev would have to 
dissolve the parliament for there to be elections.  Over 
dinner, Saudabayev told Boucher that President Nazarbayev 
will make sure that expectations for early parliamentary 
elections, resulting from the constitutional reforms, will be 
met, and commented later that elections held before the 
Madrid ministerial of the Organization for Security and 
Cooperation in Europe would "give Kazakhstan's candidacy a 
boost."  In reply, Boucher indicated that good elections 
would have a major impact on U.S. thinking; at the same time, 
both sides had agreed that more reform was also needed. 
 
Opposition: Changes a "Clear Step Backward" 
------------------------------------------- 
 
9. (C) While the consensus among the assembled political 
scientists seemed to be that, on the whole, the reform 
package was a positive development, the opposition leaders 
told Boucher that they viewed the reform package as a "clear 
step backwards," and voiced disappointment in the U.S. 
government's public assessment of the changes.  "I'm not sure 
how you managed to find one grain of democratic change in 
that huge pile of sand," Tuyakbay said.  Zhandosov claimed 
that, of 19 changes envisioned by the reform package, 16 
increased presidential authority.  The changes which appeared 
to rankle the opposition the most were the elimination of 
term limits for Nazarbayev (Abilov:  "Kazakhstan cannot be 
considered democratic with an eternal president.") and the 
expansion of presidential authority to dissolve the 
parliament.  Abilov warned that an additional amendment 
currently before parliament would prohibit the formation of 
electoral blocs, such as the one which Ak Zhol and the Social 
Democratic Party had just announced in anticipation of 
elections. 
 
10. (C) Their criticisms registered, Zhukeyev and Zhandosov 
then conceded that, in the near-term, the practical effect of 
the (negative) changes would be minimal.  However, Zhukeyev 
said, the danger lay in the fact that the changes created a 
legislative framework for a future "tightening" -- one which 
might come, for example, on the heels of a failed bid to 
chair the Organization for Security and Cooperation in 
Europe. 
 
ASTANA 00001668  003 OF 004 
 
 
 
11. (C) The opposition readily agreed with Boucher's 
assessment that the key next step was to ensure that the 
coming elections would be fair.  The politicians told Boucher 
that they were gearing up for a campaign:  "everything speaks 
to simultaneous local and parliamentary elections," Tuyakbay 
said, "and local elections must be held this year."  In this 
light, both the opposition and the political scientists 
identified the formation of representative electoral 
commissions as a key to the conduct of fair elections -- and 
as something that was already going wrong (Ref B).  Tuyakbay 
explained that the composition of Kazakhstan's 10,000 
electoral commissions would be determined by the end of July, 
and already opposition nominees were being rejected in favor 
of Nur Otan representatives.  (Tuyakbay indicated that, of 
6,000 nominees from his party, only 400 had been accepted. 
Abilov complained that only two Ak Zhol representatives had 
been accepted on to the estimated 500 electoral commissions 
in Almaty.)  What ultimately needed to happen, Tuyakbay 
suggested, was to change the way the commissions were formed: 
 currently they were elected by the Nur Otan-dominated 
maslikhats, but better that they be appointed by the 
independent Central Election Committee. 
 
Economic Priorities: Diversification, Infrastructure, WTO 
--------------------------------------------- ------------ 
 
12. (C) Prime Minister Masimov briefed Boucher on government 
efforts to attract investment into the non-extractive 
sectors, and thus further diversification, by means of a 
public/private "corporate champions" program (Ref C).  The 
idea, Masimov explained, was to prepare the environment so 
that companies could compete in the export market.  Toward 
that end, the government was planning to raise electricity 
tariffs and gas prices to encourage needed investment in 
generation capacity (Ref D), as well as encouraging investors 
to enter into road and railway projects.  Masimov explained 
that he had recently agreed with the Prime Ministers of 
Azerbaijan and Georgia to cooperate in building a continuous 
railroad line (including a Caspian shipping link) which would 
eventually run "from Hong Kong to Hamburg" (Ref E). 
 
13. (C) Masimov asked Boucher if it would be possible to 
target the second-half of September, when he would be in the 
U.S. for World Bank meetings, for finalizing U.S.- Kazakhstan 
bilateral World Trade Organization accession negotiations. 
Lead negotiator Zhanar Aitzhanova then lobbied for the U.S. 
to defer the issue of "state trading enterprises" to 
multilateral negotiations, "as you did for Russia."  Boucher 
agreed to pass both ideas to the U.S. Trade Representative. 
 
14. (C) Asked about Kazakhstan's plans fo
r transporting gas, 
Masimov began by commenting that "we don't have much (gas) 
yet."  Masimov noted that Kazakhstan was encouraging the 
Turkmenistan-China gas pipeline project as a way to supply 
gas to Southern Kazakhstan.  Characterizing the Trans-Caspian 
gas pipeline as "something that's been talked about for a 
long time," Masimov told Boucher that he personally preferred 
the idea of shipping compressed natural gas across the 
Caspian, telling Boucher that it was "simpler than a 
pipeline."  (Tazhin indicated the same preference in an 
earlier meeting.) Masimov informed Boucher that the deal to 
ship increased volumes of Karachaganak gas to the Orenburg 
refinery in Russia (Ref F) was "more or less finalized."  The 
government was interested in increasing the overall volume of 
salable gas, Masimov said, and to that end was opening 
negotiations with oil producing companies to encourage them 
to re-inject less, and sell more, associated gas. 
 
Afghanistan and Kyrgyzstan 
------------------------- 
 
15. (C) Tazhin told Boucher that he had recommended that the 
government take a closer look at what it could do in 
Afghanistan beyond investment or humanitarian aid; to that 
end, he had asked for a study on a project, costing around 
$50 million, to build roads connecting Afghanistan and 
Tajikistan.  Masimov later confirmed that the government was 
"ready to invest" and was "very close" to a decision on road 
and infrastructure opportunities.  Imashev indicated that the 
Afghanistan "economic program" would also include training 
for Afghan army and security forces in Kazakhstani defense 
institutes. 
 
16. (C) Tokayev informed Boucher that Kazakhstan had agreed 
 
ASTANA 00001668  004 OF 004 
 
 
to provide $100 million in loans to Kyrgyzstan during 
President Nazarbayev's recent visit there; humanitarian 
assistance had also been disbursed.  Masimov indicated that 
Kazakhstan was still interested in pursuing energy projects 
in Kyrgyzstan but to date "we haven't been able to find 
anyone in Kyrgyzstan who can make deals stick."  Masimov 
added that he would lead a delegation of investors to 
Kyrgyzstan during the second half of June.  Imashev told 
Boucher that the Kyrgyz government's "weak control" was of 
increasing concern, as it had led to a "concentration" of 
Hizbut Tahrir in the country.  Imashev then claimed to have 
"records" from criminal cases which confirmed that Hizbut 
Tahrir members in Kyrgyzstan had been "trained in terrorism." 
 
17. (C) Boucher raised the topic of the upcoming Shanghai 
Cooperation Organization summit with several of his 
government interlocutors, telling them that the U.S. strongly 
preferred that the issue of the Manas airbase not be 
discussed officially during the meeting.  Saudabayev promised 
to talk with Nazarbayev about the issue and try to keep it 
off the agenda. 
 
Assessing Rakhat Aliyev's Arrest 
------------------------------- 
 
18. (C) Interpretations of the Rakhat Aliyev case (Ref G) by 
Boucher's interlocutors fell into two camps:  government 
officials, when asked, tended to minimize the importance of 
the case, and explain it as an example of the "rule of law" 
which would play out in the court system.  The opposition 
representatives and political scientists, by contrast, 
largely spurned the "rule of law" argument in favor of the 
view that Nazarbayev's hand had been forced by Aliyev's 
abuses and a resulting groundswell of complaint by important 
elements of Kazakhstan's business / political elite, many of 
whom were familiar with Aliyev's "predatory" seizure of 
business interests, and were keen to eliminate any 
possibility of Aliyev succeeding Nazarbayev. 
 
19. (U) Assistant Secretary Boucher has cleared this cable. 
ORDWAY

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07ASTANA1659, KAZAKHSTAN: BOUCHER PRESSES POLITICAL REFORM WITH

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Reference ID Created Released Classification Origin
07ASTANA1659 2007-06-18 01:35 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO8142
PP RUEHBI RUEHCI RUEHDBU RUEHLH RUEHPW
DE RUEHTA #1659/01 1690135
ZNY CCCCC ZZH
P 180135Z JUN 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 9815
INFO RUCNCIS/CIS COLLECTIVE 0203
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 04 ASTANA 001659 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
 
E.O. 12958: DECL: 06/17/2017 
TAGS: PGOV PREL KZ ECON ENRG
SUBJECT: KAZAKHSTAN: BOUCHER PRESSES POLITICAL REFORM WITH 
GOVERNMENT, OPPOSITION 
 
REF: A. ASTANA 1357 
     B. ASTANA 1033 
     C. ASTANA 1243 
     D. ASTANA 1454 
     E. ASTANA 986 
     F. ASTANA 1110 
     G. ASTANA 1415 
 
ASTANA 00001659  001.2 OF 004 
 
 
Classified By: Charge d'Affaires a.i. Kevin Milas; reasons 1.4 (b) and 
(d). 
 
ZFR ZFR ZFR ZFR ZFR 
 
CANCEL ALL COPIES OF ASTANA 001659 
WILL BE RESENT UNDER NEW MRN 
CANCEL ALL COPIES OF ASTANA 001659 
ZFR ZFR ZFR ZFR ZFR 
 
ordway 
 
ASTANA 00001659  002.2 OF 004 
 
 
ZFR ZFR ZFR ZFR ZFR 
CANCEL ALL COPIES OF ASTANA 001659 
WILL BE RETRANSMITTED UNDER NEW MRN 
CANCEL ALL COPIES OF ASTANA 001659 
 
 
ASTANA 00001659  003.2 OF 004 
 
 
ZFR ZFR ZFR ZFR ZFR 
CANCEL ALL COPIES OF ASTANA 001659 
WILL BE RETRANSMITTED UNDER NEW MRN 
CANCEL ALL COPIES OF ASTANA 001659 
 
 
ASTANA 00001659  004.2 OF 004 
 
 
ZFR ZFR ZFR ZFR ZFR 
CANCEL ALL COPIES OF ASTANA 001659 
WILL BE RETRANSMITTED UNDER NEW MCNS 
ZFR ZFR ZFR ZFR ZFR 
 
ORDWAY

Wikileaks

07ASTANA1438, KAZAKHSTAN SIGNS AGREEMENT ON CREATION OF

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Reference ID Created Released Classification Origin
07ASTANA1438 2007-05-29 03:14 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO8228
PP RUEHDBU
DE RUEHTA #1438/01 1490314
ZNY CCCCC ZZH
P 290314Z MAY 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 9562
INFO RUCNCIS/CIS COLLECTIVE 0180
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 001438 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
 
E.O. 12958: DECL: 05/28/2015 
TAGS: ENRG EPET KZ RS
SUBJECT: KAZAKHSTAN SIGNS AGREEMENT ON CREATION OF 
INTERNATIONAL URANIUM ENRICHMENT CENTER 
 
REF: A. 06 ALMATY 602 
 
     B. 06 ALMATY 2673 
 
Classified By: Acting DCM Deborah Mennuti; reasons 1.5(b) and (d). 
 
1. (C) Summary: On May 10 representatives of the Government 
of Kazakhstan and the Government of Russia signed an 
Inter-governmental Agreement to set up an international 
uranium enrichment center, under International Atomic Energy 
Agency (IAEA) control, in Angarsk, Russia.  For Kazakhstan's 
state-owned atomic energy company, KazAtomProm, the agreement 
represents an important step toward achieving its stated goal 
of completing the nuclear fuel cycle, and thereby capturing 
additional value in the processing of its natural uranium 
reserves.  In addition to completing the fuel cycle, 
KazAtomProm is driven to become the world's largest 
uranium-producing company, with company president Mukhtar 
Dzhakishev announcing a production target of 18,000 tons of 
natural uranium by 2010. KazAtomProm has signed several 
uranium production agreements toward these ends in the past 
year, primarily with Russian and Japanese companies. 
According to a high-level KazAtomProm executive, the company 
has also finalized terms of a deal to buy 10% of Westinghouse 
from Toshiba.  End summary. 
 
International Uranium Enrichment Center 
--------------------------------------- 
 
2. (SBU)  On May 10, Kazakhstan's Energy Minister and 
Russia's Director of the Federal Atomic Energy Agency 
(ROSATOM) signed an Inter-governmental Agreement (IGA) on the 
creation of an international uranium enrichment center in 
Angarsk, Russia.  The stated goal of the center is to provide 
participating states with guaranteed access to enrichment 
facilities for the purpose of creating nuclear fuel.  (The 
agreement also stipulates that participating states may, with 
IAEA and Russian government approval, create stockpiles of 
enriched uranium under the center's auspices.) 
 
3. (SBU) The agreement specifies that the enrichment center 
will be established using existing facilities at the Angarsk 
Electrolysis Chemical Combine; media quotes from ROSATOM's 
Director suggest that, while initial production will be 
launched using the Combine's "unused capacities," the 
Center's operations could be expanded in the future to new, 
or other existing enrichment facilities -- likely with 
funding from new partners.  The agreement states that 
additional countries without enrichment facilities of their 
own may join the joint venture, provided they are in 
compliance with the Nuclear Non-Proliferation Treaty.  While 
Kazakhstan and future partner governments may own equity in 
the center, and participate in its management, the agreement 
prohibits the transfer of Russian enrichment technology to 
Kazakhstan and future joint venture partners. 
 
4. (C) On May 18, KazAtomProm Vice President Dmitry Parfenov 
told Energy Officer that the IGA had been "based on" 
commercial negotiations between KazAtomProm and Russia's 
Techsnabexport (TENEX).  TENEX and KazAtomProm are already 
majority shareholders (49.33% each) in the Zarechnoye mining 
joint venture in Kazakhstan (where uranium production began 
in December 2006) and in a new, 2006 JV to exploit 
Kazakhstan's Budenovskoye mine, where production is scheduled 
to begin in 2008.  TENEX also signed a fifteen-year contract 
in 2006 to deliver Zarechnoye uranium to Russia (exact 
destination undisclosed) for enrichment.  KazAtomProm and 
TENEX's presence in each of these deals lends evidence to the 
widespread conclusion that KazAtomProm envisions using the 
Angarsk center for the enrichment of future volumes of 
uranium mined at Zarechnoye and Budenovskoye, for onward sale 
to interested nations. 
 
KazAtomProm: Completing the Fuel Cycle 
-------------------------------------- 
 
5. (SBU) KazAtomProm President Mukhtar Dzhakishev has been 
outspoken about his company's ambition to complete the 
nuclear-fuel cycle, articulating the goal as a logical 
business strategy: maximizing the value added in Kazakhstan's 
natural uranium reserves.  The Angarsk deal clearly gives 
KazAtomProm a share of the value-added by the uranium 
enrichment process, while the deal's prohibition on 
enrichment technology transfer appears to adhere to 
international non-proliferation standards, while also having 
the effect of precluding KazAtomProm from emerging as a 
direct competitor to Russia's enrichment industry. In 
 
ASTANA 00001438  002 OF 002 
 
 
general, both Dzhakishev and officials of both governments 
have explained the Angarsk and Budenovskoye JV's (along with 
a third, to design and market small- and medium sized 
reactors, announced simultaneously in July 2006) as 
exploiting a complementarity in the Russian and Kazakhstani 
nuclear industries created in the Soviet era.  In a December 
2006 interview with BBC, for example, Dzhakishev credited the 
joint ventures as the outcome of a realization that, 
"..during Soviet times our e
nterprises were meant to be part 
of...a single nuclear-fuel cycle, and that both the Russian 
and Kazakh sides can, by being mutually complementary, get a 
competitive advantage in the market." 
 
6. (C) However, it is clear that KazAtomProm is not limiting 
its pursuit of the complete nuclear fuel cycle to those 
projects which "complement" existing Russian ventures. 
Parfenov told Energy Officer that KazAtomProm had recently 
finalized negotiations to purchase 10% of Westinghouse from 
Toshiba; the deal, he said, was awaiting USG approval.  Prior 
to Toshiba's October 2006 acquisition of Westinghouse, 
KazAtomProm partnered with General Electric to make a 
competitive bid for the company.  In a January 2006 interview 
with "Nuclear.Ru" Dzhakishev explained that, if KazAtomProm 
succeeded in its bid to buy Westinghouse, the company would 
enter into direct competition with Russia's TVEL in the 
production of fuel assemblies.  KazAtomProm is also pursuing 
deals in other aspects of the fuel cycle with non-Russian 
partners.  Parfenov told Energy Officer that the company 
would soon announce a "Memorandum of Intent" with Canada's 
CAMECO for the creation of a conversion facility in 
Kazakhstan, "or elsewhere, if it isn't profitable in 
Kazakhstan."  The April visit of Japan's Minister of Economy, 
Trade, and Industry, Akira Amari, Parfenov explained, had 
yielded a "strategic understanding" with the Japanese 
companies NFI and Sumitomo on "the most difficult part of the 
fuel cycle," the fabrication of fuel assemblies.  (Note: The 
Japanese Minister's visit also resulted in an announcement by 
Dzhakishev that KazAtomProm would dramatically increase the 
exports of uranium and uranium value-added products to Japan, 
to reach 40% of the market share of the former by 2010.  And 
on April 24, Japan's Marubeni Corporation, Tokyo Electric 
Power Company, and Chubu Electric Power Company announced 
their joint acquisition of an indirect ownership interest in 
the companies developing Kazakhstan's Kharasan mine, 
projected to produce 750 tons of uranium by 2012.  End note.) 
 
Uranium Production: Doubling in Three Years? 
-------------------------------------------- 
 
7. (U) According to the Ministry of Energy and Mineral 
Resources, Kazakhstan produced 5,279 tons of uranium in 2006, 
an increase of 21% above 2005.  Output in 2007 is expected to 
reach 6,937 tons, an additional rise of 31%. 
KazAtomProm has set forth lofty mid-term production goals. In 
an April 2007 interview with a Kazakhstani newspaper, 
Dzhakishev announced that KazAtomProm's uranium production 
would reach 18,000 tons by 2010.  In 2004, Dzhakishev 
explained, KazAtomProm had announced a 2010 target of 15,000 
tons, but "we recently reviewed our plans and raised the bar 
a little more."  Dzhakishev has also articulated the related 
goal of transforming KazAtomProm into the world's largest 
uranium producing company in the same time frame. (According 
to the World Nuclear Association, KazAtomProm currently ranks 
a distant second to Canada's CAMECO.)  In order to realize 
these production goals, KazAtomProm will depend heavily on 
newly-opened uranium mines, including Zarechnoye, Mynkuduk, 
Budenovskoye, and Kharasan. 
GILMER

Wikileaks

07ASTANA1302, KAZAKHSTAN: PRIME MINISTER AND FOREIGN MINISTER

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Reference ID Created Released Classification Origin
07ASTANA1302 2007-05-15 11:04 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO5566
PP RUEHDBU
DE RUEHTA #1302/01 1351104
ZNY CCCCC ZZH
P 151104Z MAY 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 9444
INFO RUCNCIS/CIS COLLECTIVE 0163
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 001302 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR SCA/FO SMANN); EB/ESC; SCA/CEN (O'MARA) 
DEPT PLEASE PASS USTDA (DSTEIN) 
 
E.O. 12958: DECL: 05/14/2017 
TAGS: ENRG EPET KZ RS TX
SUBJECT: KAZAKHSTAN: PRIME MINISTER AND FOREIGN MINISTER 
DOWNPLAY ANNOUNCED GAS PIPELINE DEALS 
 
REF: ASHGABAT 489 
 
Classified By: Ambassador John Ordway; reasons 1.4 (b) and (d). 
 
1. (C) Summary: Both Prime Minister Masimov and Foreign 
Minister Tazhin downplayed the significance of the gas 
pipeline deals announced during the May 12 tripartite summit 
in Turkmenistan (Ref A) in separate May 15 conversations with 
Ambassador Ordway.  Masimov told the Ambassador that "all we 
agreed to was a feasibility study" for a new gas pipeline, 
and that "only because it was so very important to Putin." 
Tazhin, in turn, described the deal as a "Russian deal for 
Turkmen gas," and assured the Ambassador that "we are not 
cutting off any options" for gas transportation.  Masimov 
also told the Ambassador that the summit had not led to any 
progress on the issue of Caspian Pipeline Consortium (CPC) 
expansion, and voiced skepticism that the Government of 
Russia would ever agree to expansion terms.  Masimov 
acknowledged that the government was preparing itself for a 
heated battle with Kashagan partners once project delays and 
cost overruns were formally announced later this summer; in 
addition to financial compensation, he said, the government 
might seek a change of operator.  End summary. 
 
Downplaying the Gas Pipeline Drama 
---------------------------------- 
 
2. (C) On May 15, Prime Minister Masimov downplayed the gas 
pipeline deals announced during the May 12 tripartite summit 
in Turkmenistan, telling Ambassador Ordway that "all we 
agreed to was a feasibility study" for a new gas pipeline, 
and that Nazarbayev had gone that far "only because it was so 
very important to Putin."  The presidents, he said, had 
ordered their governments to draw up an agreement for 
signature by September 1.  Masimov portrayed the deal as 
driven by the Russians and Turkmen, with Kazakhstan involved 
merely by virtue of geography. 
 
3. (C) What Kazakhstan was really after in Turkmenistan was a 
gas concession, Masimov explained, in order to secure gas 
supplies for Kazakhstan's gas-deficit Southern population 
centers.  Beyond that, he said, the Government of Kazakhstan 
(GOK) had pursued railroad and road projects linking the 
Caspian port of Aktau with Turkmenistan. 
 
4. (C) Foreign Minister Tazhin requested the May 15 meeting 
with Ambassador Ordway, telling the latter that he was 
fulfilling a commitment he had made to Principal Deputy 
Assistant Secretary Mann to inform the USG about the 
discussions in Ashgabat.  Like Masimov, Tazhin downplayed the 
significance of the announced agreements.  What had 
transpired, he said, was a "Turkmen-Russian deal for Turkmen 
gas."  Kazakhstan, he noted, was only a transit country.  The 
deal did not involve Kazakhstani gas, nor any project on the 
Kazakhstani shelf.  Therefore, he concluded, there was 
nothing which Kazakhstan had been in a position to say "no" 
to.  Tazhin shared an additional detail of the gas pipeline 
project with the Ambassador, noting each of the three 
countries would pay for the construction of that part of the 
pipeline which passed through its territory, with Kazakhstan 
recouping its investment by means of transit fees. 
 
5. (C) Tazhin also qualified Nazarbayev's May 10 remark 
(following a meeting with Putin) to the effect that 
Kazakhstan was committed to shipping most, if not all, of its 
oil through Russian territory.  Tazhin agreed that, even if 
CPC expansion was factored in, there was "no way" that 
Kazakhstan could export all its oil through Russia. 
 
 
No Progress on CPC Expansion 
---------------------------- 
 
6. (C) Masimov told the Ambassador that, notwithstanding 
Nazarbayev's media quotes implying that optimism on CPC 
expansion was justified, no progress had been made on the 
issue.  "The Russians are not going to agree on CPC 
expansion," Masimov said flatly.  Masimov noted that he would 
be traveling to Moscow on June 1, where a host of energy 
issues, including CPC expansion, possible expansion of the 
Atyrau-Samara pipeline, and the Orenburg gas-processing plant 
joint venture would be at the top of his agenda.  (Tazhin 
told the Ambassador that the Orenburg negotiations were "very 
difficult" as well.  The Russians were striking a hard 
bargain, he said, knowing that the cost to the Kazakhstanis 
 
ASTANA 00001302  002 OF 002 
 
 
of constructing their own, alternative gas processing plant 
were nearly prohibitive.) 
 
Tough Times Ahead for Kashagan Partners 
--------------------------------------- 
 
7. (C) Masimov informed the Ambassador that the GOK had hired 
outside, U.S. consultants -- including Cambridge Energy 
Research Associates' Daniel Yergin -- in preparation for the 
formal announcement, later this summer, of Kashagan delays 
and cost overruns.  (Note: The Kashagan partners will present

the project's "Final Project Schedule," as well as cost 
estimates for full field development, to the GOK either in 
late June or July.  End note.)  The report, Masimov 
predicted, would unleash a "storm," as the GOK intended to 
seek economic compensation for the delays and cost overruns. 
The GOK might go further, he said, and seek a change of 
operator.  While the GOK was considering a series of options, 
Masimov concluded, it had no interest in either slowing down 
overall Kashagan development or forcing any existing partner 
to sell its stake in the consortium. 
 
Comment 
------- 
 
8. (C) While we are encouraged by Masimov's interpretation of 
what was -- and what wasn't -- agreed to in Turkmenistan, it 
is clear that our window of opportunity for proving the 
advantages, both economic and geopolitical, of a 
Trans-Caspian gas pipeline is closing.  In order to counter 
the momentum squarely now on the side of the Russians, we 
need to move ahead with our own Trans-Caspian pipeline 
feasibility study as soon as possible.  We may need to 
rewrite the Terms of Reference in order to obtain at least 
preliminary results by September 1, in order to give 
ourselves the evidence and arguments to state our best case. 
ORDWAY

Wikileaks

07ASTANA1243, KAZAKHSTAN: MERMOUD DISCUSSES PUBLIC-PRIVATE

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Reference ID Created Released Classification Origin
07ASTANA1243 2007-05-08 10:33 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO8710
PP RUEHDBU
DE RUEHTA #1243/01 1281033
ZNY CCCCC ZZH
P 081033Z MAY 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 9396
INFO RUCNCIS/CIS COLLECTIVE 0156
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 06 ASTANA 001243 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
 
E.O. 12958: DECL: 03/15/2017 
TAGS: ECON EPET ETRD PGOV KZ
SUBJECT: KAZAKHSTAN: MERMOUD DISCUSSES PUBLIC-PRIVATE 
PARTNERSHIP AND ASTANA,S PUSH FOR DIVERSIFICATION 
 
REF: A. A) ASTANA 1240 
     B. B) ASTANA 1122 
     C. C) 06 ASTANA 150 
     D. D) ASTANA 753 
 
Classified By: CDA Kevin Milas; reasons 1.4 (b) and (d). 
 
1. (C) Summary.  In April 24-26 meetings with Prime Minister 
Masimov, other Kazakhstani government officials, and private 
sector representatives, Special Representative for Commercial 
and Business Affairs J. Frank Mermoud discussed the 
Kazakhstani government,s fast-evolving approach to economic 
diversification and opportunities for bilateral engagement in 
the framework of the Public-Private Partnership Initiative. 
Masimov outlined the GOK,s latest plans to shift its focus 
away from further development of the oil sector toward 
domestically-driven diversification.  He presented the new 
&30 corporate leaders of Kazakhstan8 strategy, the GOK,s 
own public-private initiative, and expressed interest in 
exploring ways to create links with the proposed U.S. 
initiative.  Representatives of the private sector emphasized 
tax and customs administration, along with a rule of law 
deficit, as key obstacles to sustainable business and 
economic development.  They expressed hope that the 
Public-Private Partnership Initiative can become a vehicle 
for addressing these concerns.  Ref A reports Masimov,s and 
Sagadiyev,s remarks on the GOK,s current plans for the oil 
sector.  Please see action request in paragraph 25.  End 
summary. 
 
2. (SBU) Special Representative Mermoud met the following 
representatives of the Kazakhstani government and the 
business sector: 
 
April 24: 
-- Raimbek Batalov, President of the Forum of Entrepreneurs 
-- Arman Moldakhmetov, Vice President of the National 
Innovation Fund 
-- Courtney Fowler, Partner - Pricewater House Cooper 
-- Kenneth Mack, Partner - Chadbourne & Parke, President of 
the American Chamber of Commerce 
 
April 25: 
-- Serik Akhmetov, Chairman of the Association of Financiers 
of Kazakhstan 
-- Yerlan Sagadiyev, Advisor to the Prime Minister 
-- Nurlan Kapparov, President of KazInvest Bank 
 
April 26: 
-- Azat Peruashev, President of the &Atameken8 Union of 
Entrepreneurs 
-- Ulf Wokurka, Deputy Chairman & CFO of Samruk State Holding 
Co. 
-- Karim Masimov, Prime Minister 
-- Alikhan Smailov, Chairman of Managing Board ) &KazAgro8 
National Holding Co. 
-- Askar Batalov, Vice Minister of Industry & Trade 
-- Serik Akhmetov, Minister of Transport & Communications 
 
Shifting Focus Away from Oil( 
----------------------------- 
 
3. (C) On April 26, Prime Minister Masimov provided Special 
Representative Mermoud and the Ambassador with some 
background on the GOK,s current economic thinking. 
President Nazarbayev, Masimov said, attached a lot of 
importance to economic diversification even in the early days 
of Kazakhstani independence.  &Back then,8 Masimov mused, 
&we were hoping for a Marshall Plan.8  &Unfortunately,8 
he continued, Kazakhstan is &most interesting8 to foreign 
investors as a supplier of oil, not &other things.8  Now, 
the Prime Minister stated, the government has decided to take 
action into its own hands.  &Before, we focused on selling 
natural resources.  Now we want to sell products.8 
 
4. (C) In an earlier meeting, Masimov,s Advisor Yerlan 
Sagadiyev expressed the view that the GOK,s spending of its 
oil windfall is crowding out the desired private investment 
in the non-extractive sector.  Kazakhstan,s corporations, he 
said, are directing their investment abroad as they flee the 
uncertainty created by the GOK,s heavy-handed involvement in 
a wide range of sectors.  He explained that the challenge is 
to delineate the separation of the government,s and the 
private sector,s roles in the economy.  The idea, Sagadiyev 
stated, is for the state to inform the private sector what it 
will do and what the state expects from the private sector. 
 
ASTANA 00001243  002 OF 006 
 
 
 
And Toward a New Vision: the Thirty Corporate Leaders 
--------------------------------------------- -------- 
 
5. (C) The new plan, Masimov explained, rests on a 
Kazakhstani-driven pursuit of diversification.  The idea is 
to appoint 30 domestic corporations as &corporate leaders8 
or &national champions8 and entrust them with large-scale 
investment projects.  &Our financial system is strong and 
lets us take much of the risk ourselves,8 Masimov stated, 
&(what we need (from abroad) is the know-how.8  The three 
areas of focus, he said, are education, healthcare, and 
transportation infrastructure. 
 
6. (C) Sagadiyev provided some of the practical details.  On 
April 20, President Nazarbayev met with some of the top 
representatives of the Kazakhstani business world (Ref B). 
The meeting was
a prelude to the identification of 30 
large-scale investment projects to be assigned to these 
corporate leaders.  &Thirty,8 explained Masimov to S/R 
Mermoud and the Ambassador, &is because twenty is too few, 
and forty is too many.8  Vice Minister of Industry and Trade 
Askar Batalov told S/R Mermoud that each project will range 
in size from $500 million to $1 billion.  (Note:  According 
to a posting on the Presidential Administration website, each 
project will have a minimum implementation cost of $100 
million.  End note.) 
 
7. (C) The next steps, Sagadiyev explained, are for the 
government to identify the 30 corporate leaders and have 
relevant ministries sign memoranda of understanding with 
them.  &Not all ministries,8 Sagadiyev remarked, &are 
sincere in pursuing in this.8  The plan, then, is to start 
with two: Industry and Trade, and Agriculture.  Sagadiyev 
added that it was his job to find the corporate champions: 
&it has been five days, and we have been traveling 
heavily.8  He alluded repeatedly to using Britain,s 
privatization experience as a guide in pursuing this vision 
and, particularly, in drafting the MOUs: &we have a sample 
from Britain signed by Thatcher during energy 
privatization.8   The first MOU is to be signed in about a 
month.  U.S. consultants, Sagadiyev added, are being used 
extensively in implementing this vision, including on the 
issue of the public-private partnership. 
 
A Role for Foreign Investors? 
----------------------------- 
 
8. (C) While presenting his government,s new economic plan 
as partly a reaction to the failure of foreign investors to 
sufficiently embrace opportunities existing in Kazakhstan,s 
non-extractive sector, Masimov stressed the vision,s 
welcoming orientation toward foreign participation.  &We 
will have open, clean tenders,8 he assured S/R Mermoud and 
the Ambassador.  &If foreign investors are interested, they 
are more than welcome,8 continued Masimov, and &if not, 
that,s okay.8  But, he concluded, &conferences and good 
economic relations are not enough.8   Sagadiyev took the 
same results-oriented approach: &We are seeking specific 
projects.  We have passed the stage of understanding; we need 
to do things.8  Masimov cited GE,s locomotive-building 
operation near Astana and the Fed Ex operations in Almaty as 
the kind of &good projects8 the GOK is seeking. 
 
9. (C) Both Masimov and Sagadiyev expressed appreciation for 
the potential role that the U.S. technical expertise could 
play.  &We do not have enough experience and technology; 
this is where we are looking for Western participation,8 
stated Masimov.  He called the U.S. &number one8 in 
technology and economic development and pointed out two 
specific areas with particular promise for collaboration: 
agriculture (&very good discussions with Secretary 
Johanns8) and alternative energy.  Sagadiyev explained that 
current electricity tariffs, &a killer8 to alternative 
energy, will be increased.  &At 7-8 cents (per kw/hr),8 he 
mused, &alternative energy will make sense.8  The U.S., he 
added, is &quite advanced8 in this area. 
 
10. (C) Batalov also emphasized that the plan presents an 
invitation to foreign investors, describing the 
identification of 30 domestic leaders as a &signal8 to 
foreign companies of who their Kazakhstani partners should 
be.  He also mentioned the idea of creating consortia with 
the participation of international financial institutions 
(IFI,s) and the notion that private companies are better 
vehicles for conducting tenders than the government.  The 
 
ASTANA 00001243  003 OF 006 
 
 
thirty leaders will choose their partners among domestic and 
foreign companies.  Furthermore, Batalov stressed, 
Kazakhstan,s Law on Investments provides the same legal 
treatment to foreign and domestic investors.  Still, Batalov 
was clear about the strong domestic orientation of the GOK,s 
current vision: &This is about proposing to domestic 
companies projects that would, in the past, be offered to 
foreign investors(  The thirty will take the projects.  This 
is what protectionism is.8 
 
11. (C) Batalov was both candid and vague on the precise 
relationship the government will have with the corporate 
leaders.  He echoed Sagadiyev,s description of a quid pro 
quo arrangement in which the government provides 
&facilitation8 (e.g. engineering platforms, the legislative 
base, WTO accession), and the &leaders8 will commit to 
carrying out their projects.  He mentioned another reason for 
entrusting the &breakthrough projects8 exclusively to 
domestic companies.  &We cannot tell foreign investors,  go 
there and do this,,8 stated Batalov, &but we can say this 
to domestic companies.8   He summed up the philosophy of the 
vision as &ninety percent economics, ten percent national 
pragmatism.8  Batalov acknowledged S/R Mermoud,s cautionary 
note on the risk of creating monopolies.  &We are familiar 
with the experience of South Korean chaebols as well as the 
British experience,8 Batalov said.  Describing the South 
Korean scenario as &too extreme,8 he remarked, &we will be 
somewhere in the middle.8 
 
Business Climate ) the View from Within 
--------------------------------------- 
 
12. (C) The themes raised by GOK officials had little in 
common with the concerns S/R Mermoud consistently heard from 
representatives of the Kazakhstani private sector.  Raimbek 
Batalov, President of the Forum of Entrepreneurs ) an 
Almaty-based NGO which positions itself as the genuine 
national voice of small- and medium-sized business as well as 
regional and industry business associations ) outlined four 
government failures as the primary obstacles to economic and 
business development in today,s Kazakhstan.  The GOK,s key 
failures, Batalov said, are in the areas of tax policy, 
customs policy, rule of law, and trade policy.  (Note: 
Raimbek Batalov is not known to be related to Vice Minister 
Batalov.  His focus on trade policy appears to stem from his 
role as the CEO of a major retail chain.  End note.) 
 
13. (C) These policy and enforcement failures, according to 
Batalov, are driving an untold portion of the country,s 
economic activity into the shadow economy.  Much of the 
trend, Batalov explained, starts at Kazakhstan,s borders.  A 
regulatory loophole for small- and medium-sized businesses, 
combined with customs officials, notoriously corrupt ways, 
leads to a situation where most goods entering Kazakhstan do 
so &under the radar.8  Importers break up their wares into 
smaller portions and &misdeclare8 them at the customs 
control, relying on the customs officials, incompetence and 
venality.  Thus escaping the tariff system, such goods 
directly proceed to enter Kazakhstan,s shadow economy via 
bazaars, where they reach the consumer without ever being 
subjected to taxation, standardization or other regulations. 
(Note: In September 2006, Lubov Khudova, Chairwoman of 
Kazakhstan,s Light Industry Associat
ion, described to 
Econoff precisely the same phenomenon and partly blamed it 
for the spectacular decline of Kazakhstan,s textile 
manufacturing.  Ref C.  End note.)  Batalov concluded that 
the Business Forum,s research indicates that over 60% of all 
business activity in Kazakhstan takes place in the shadow 
economy, far above official estimates of 24%. 
 
14. (C) Courtney Fowler, Partner of Price Waterhouse Coopers, 
and Kenneth Mack, Partner at Chadbourne & Park and President 
of AmCham Kazakhstan, firmly confirmed Batalov,s emphasis on 
corruption as the key impediment to business development in 
Kazakhstan.  Fowler stressed that tax administration ) 
marred by corruption, incompetence, and a lack of proper 
accounting practices ) places a tremendous burden on 
business.  On the corporate side, she told S/R Mermoud, the 
situation is also troubling.  It is common for companies to 
keep two sets of (unmatching) books ) one for accounting 
purposes, the other for taxes.  Heads of auditing 
departments, Fowler added, are frequently not accountants, 
let alone auditors.  Echoing Batalov,s message on the shadow 
economy, she remarked that &no one bats an eye when you pay 
for something with $200,000 cash.8  Fowler lamented the 
GOK,s failure to address the &systemic8 issues and cited 
 
ASTANA 00001243  004 OF 006 
 
 
the rule of law deficit as a major problem: &if foreign 
investors cannot trust their Kazakhstani partners,8 she 
mused, &Kazakhstan will never achieve diversification.8 
 
15. (C) Serik Akhanov, Chairman of the Association of 
Financiers of Kazakhstan, presented to S/R Mermoud a rather 
optimistic view of the country,s financial system and 
macroeconomic situation.  He named inflation as a principal 
macroeconomic risk but stressed that the central bank remains 
watchful in guarding against it.  He stated that the 
Kazakhstani private sector,s mushrooming external borrowings 
are creating a vulnerability to external shocks, particularly 
to rising interest rates, but explained that Kazakhstan,s 
financial institutions are turning abroad due to a lack of 
long-term capital at home.  While lauding Kazakhstan,s 
banking sector as highly developed and operating on par with 
international standards, Akhanov said that the insurance and 
pension industries continue to lag.  He appeared largely 
unperturbed by the rapid expansion of the real estate sector, 
saying that only the &elite8 top 2% of the housing market 
was showing significant signs of speculative activity. 
 
Inside the State Holding Companies 
---------------------------------- 
 
16. (C) Arman Moldakhmetov, Vice President of the National 
Innovation Fund (NIF), briefed S/R Mermoud on the Fund,s 
approach to spurring diversification.  The NIF is a component 
of the Kazyna Fund for Sustainable Development, a state 
holding company currently encompassing 14 development 
institutions.  The NIF,s model is based on equity 
participation in high-tech, &knowledge-economy8 projects. 
This participation ranges up to 49% ownership, since ) 
Moldakhmetov explained ) &we do not want to manage.8  The 
NIF sees its key role as bringing together the government, 
the academia, and the corporate sector.  &Kazakhstan,8 he 
remarked, &is full of money.  The shortage is of good 
projects.8  Moldakhmetov mentioned the NIF,s involvement in 
three &technoparks8 established in Uralsk, Karaganda, and 
Almaty to provide infrastructure for entrants into the 
knowledge economy.  These, he said, &are not doing well. 
There is furniture, nothing else.  No one is working.8 
 
17. (C) Samruk State Holding Company CFO Ulf Wokurka briefed 
S/R Mermoud on Samruk activities within the framework of the 
holding companies, &three principal activities8: 
improving corporate governance, helping to develop 
Kazakhstan,s domestic capital market, and facilitating 
&select investment opportunities.8  Expanding on the third 
topic, Wokurka explained that in May, Samruk would establish 
a fully-owned &investment subsidiary,8 which would 
coordinate targeted infrastructure projects, addressing such 
issues as project finance, until the point in which the 
projects could be &handed over8 to interested private or 
state entities.  Wokurka mentioned the construction of a 
combined heat and power plant near Balkash (Ref D) as an 
example. 
 
18. (C) Wokurka explained that in order to facilitate 
development of a domestic capital market, the Prime Minister 
had directed Samruk, along with the other state-holding 
companies, to develop further candidate companies for IPOs, 
in accordance with the rules establishing the Almaty Regional 
Financial Center.   To this end, Wokurka said, Samruk was 
steering its companies toward financing by means of debt 
instruments, in addition to the more-customary commercial 
loans. Wokurka told S/R Mermoud that Samruk,s next IPO (of 
the Mangistau oblast electrical grid operator) would occur in 
late 2007.  The GOK had planned to transfer to Samruk another 
fifteen companies, Wokurka said, but Samruk had asked that 
the transfer be delayed while the holding company better 
assimilated its existing holdings.  Wokurka also confirmed 
that a new company, &Samruk Energy,8 would soon be 
established to manage Samruk,s five power generating 
companies. 
 
19. (C) Alikhan Smailov, Chairman of the Managing Board of 
the newly created state agricultural holding company 
&KazAgro,8 briefed S/R Mermoud on his organization,s 
plans.  KazAgro, he explained, currently incorporates seven 
of the GOK,s agricultural companies, whose missions range 
from intervention in grain markets to providing microcredits 
to rural communities to purchasing and reselling livestock 
products.  KazAgro,s overall mission, Smailov said, is to 
manage the state,s agricultural assets in accordance with 
corporate management standards as well as national goals. 
 
ASTANA 00001243  005 OF 006 
 
 
The plan, he explained, is to increase these assets, value 
by &taking some corrective measures to establish proper risk 
management, internal control, etc.8  The next step would be 
to privatize some of the holdings.  &This,8 Smailov summed, 
&is our approach, and it has been approved by the Prime 
Minister.8 
 
20. (C) Smailov spoke extensively about KazAgro,s plans in 
the ethanol market.  The vision is to construct bioethanol 
plants to produce ethanol for export and achieve production 
levels of 3 billion liters per year.  Large-scale beef and 
dairy farms are also planned, and KazAgro is expanding grain 
export infrastructure by building terminals on the Caspian. 
He noted that KazAgro is seeking foreign investors, interest 
in these projects, particularly in bioethanol.  What is 
needed from foreign partners, Smailov said, is &modern 
equipment at reasonable prices8 and help with marketing 
these products abroad. 
 
Prospects for the Public-Private Partnership 
-------------------------------------------- &#x000
A; 
21. (C) S/R Mermoud received wide-ranging input from his 
interlocutors on the possible directions of the bilateral 
Public-Private Partnership Initiative (PPPI).  Masimov 
expressed an interest in proceeding with the Initiative.  He 
named Sagadiyev as the primary Kazakhstani interlocutor on 
the issue and suggested that Sagadiyev travel to Washington 
in June to explore the avenues the PPPI may take.  Minister 
of Transport Serik Akhmetov told S/R Mermoud that his 
ministry has a great interest in developing international 
contacts and attracting foreign investment.  The $30 billion 
Transportation Strategy passed last year, Akhmetov said, 
provides for some of the funding to come from &non-budget8 
sources, such as foreign investment. 
 
22. (C) Business sector representatives ) Fowler, Mack, and 
the Forum,s Raimbek Batalov ) focused on the PPPI,s 
potential in addressing the &systemic8 issues (e.g. tax and 
customs administration, the rule of law) currently getting 
short shrift from the GOK.  Batalov and Mack, in particular, 
expressed a strong interest in establishing collaboration 
between the Entrepreneurs Forum and the AmCham.  Both Batalov 
and Mack held the view that organizing a discussion of ) and 
proposing solutions to )&systemic8 issues in a PPPI forum 
could spur the GOK to much-needed action.  Fowler suggested 
building links between U.S. and Kazakhstani business schools 
as a way to rectify the shortage of management expertise. 
The Financiers Association,s Akhanov likewise expressed 
interest in fostering exchanges among corporate leaders at 
varying levels.  The Innovation Fund,s Moldakhmetov offered 
to provide input on any future plans or ideas in the context 
of the PPPI.  Azat Peruashev, Chairman of the&Atameken8 
Union of Entrepreneurs, which purports to be Kazakhstan,s 
official national business association, expressed a strong 
interest in building links with U.S. counterparts. 
 
Comment 
------- 
 
23. (C)  The fact that the proposed bilateral PPPI coincides 
with the GOK,s own public-partnership program presents 
opportunities as well as potential challenges.   The GOK,s 
new approach is unapologetically focused on domestic 
companies and highly results-oriented.  Kazakhstani 
officials, underlying question seems to be: how can the PPPI 
fit into Kazakhstan,s own public-private program and what 
concrete results (i.e. investment commitments) can it bring 
in the foreseeable future?  The GOK,s intensity may be 
partly explained by practical considerations: Masimov 
recently told Ambassador Ordway that his government will only 
have two to three years to achieve its goals. 
 
24. (C) The GOK,s &30 corporate leaders8 program, while an 
outgrowth of the macroeconomically sound desire to diversify 
the economy away from the extractive sector, is fraught with 
risks.  Without proper safeguards, the vision may well lead 
to creation of more monopolies, a phenomenon already plaguing 
a range of key economic sectors such as telecommunications 
and civil aviation.  In any case, the policy signals the 
GOK,s continued adherence to a &top-down8 approach to 
economic diversification and an apparent lack of urgency in 
confronting the &systemic8 issues that are the main 
concerns of the business sector.  Notably, the business 
representatives, hopes for the PPPI were that the Initiative 
would specifically address the problems the GOK is continuing 
 
ASTANA 00001243  006 OF 006 
 
 
to ignore.  End comment. 
 
25. (SBU) Action request: Post requests Department guidance 
regarding next steps on the Public-Private Partnership 
Initiative, as well as clarification of which office will 
have the lead. 
 
26. (U) This cable has been cleared by S/R Mermoud. 
MILAS

Wikileaks

07ASTANA1240, KAZAKHSTAN: PRIME MINISTER DISCUSSES OIL SECTOR

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Reference ID Created Released Classification Origin
07ASTANA1240 2007-05-08 07:28 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO8485
PP RUEHDBU
DE RUEHTA #1240/01 1280728
ZNY CCCCC ZZH
P 080728Z MAY 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 9390
INFO RUCNCIS/CIS COLLECTIVE 0154
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 001240 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
 
E.O. 12958: DECL: 05/07/2017 
TAGS: ENRG EPET KZ
SUBJECT: KAZAKHSTAN: PRIME MINISTER DISCUSSES OIL SECTOR 
DEVELOPMENT STRATEGY, AUDITS OF CONTRACT COMPLIANCE 
 
REF: A. ASTANA 684 
     B. ASTANA 908 
     C. ASTANA 848 
     D. ASTANA 443 
     E. 06 ASTANA 738 
     F. 06 ASTANA 501 
 
Classified By: Ambassador John Ordway; reasons 1.5(b) and (d). 
 
1. (C) Summary: In back-to-back April 26-27 conversations 
with Commercial and Business Affairs Special Representative 
(S/R) Frank Mermoud and the Ambassador, Prime Minister 
Masimov discussed his government's strategy for developing 
Kazakhstan's oil and gas sector, its intent to audit existing 
subsoil users for compliance with their contracts, and its 
plan to review all (historical) privatization deals, to 
ensure that beneficiaries have fulfilled their contractual 
obligations.  Masimov confirmed that action on the "N Block" 
(Ref A), as well as all other oil tenders, has been 
suspended, "for a maximum of six months," while the 
Kazakhstani government figures out how to leverage the deals 
to achieve economic diversification and to increase 
value-added in hydrocarbon production.  In an April 26 
conversation with S/R Mermoud, Masimov's Advisor Yerlan 
Sagadiyev added that a lack of oil and gas transportation 
routes rendered further development of the Caspian 
problematic.  A Kazakhstani government initiative to select 
thirty domestic corporations as "national champions" and 
entrust them with large-scale investment projects as a means 
of spurring economic diversification will be reported septel. 
 End summary. 
 
New Oil Project Negotiations Suspended -- Six Months Maximum 
--------------------------------------------- -------- 
 
2. (C) On April 27, Masimov elaborated on his April 9 
conversation with the Ambassador (Ref B), telling the latter 
that the GOK had temporarily suspended action, not only on "N 
Block" negotiations, but on all ongoing oil tender 
negotiations.  (Including, presumably, ExxonMobil's efforts 
to secure rights to onshore acreage -- Ref C.)  The 
suspension would last "six months maximum," Masimov assured 
the Ambassador, while the GOK figured out how to leverage the 
tender process to achieve economic diversification and 
capture more value-added from hydrocarbon production.  (On 
April 17, Energy Minister Izmukhambetov commented publicly on 
one way in which this might be achieved, suggesting that the 
GOK might amend the hydrocarbon legislation to obligate 
subsoil users to construct refineries and other processing 
facilities.  The current, 2005 Production Sharing Agreement 
law indicates that bidders who undertake such projects will 
get preference in the allocation of offshore assets, but 
stops short of requiring them.)  The Ambassador observed 
that, if not carefully administered, such a policy could lead 
to the construction of "uneconomic" projects -- subsidized, 
in effect, by the production of crude oil.  Masimov 
acknowledged the point. 
 
3. (C) On April 25, Yerlan Sagadiyev, Masimov's Advisor, 
painted a somewhat starker picture of the GOK's latest 
thinking in a meeting with S/R Mermoud. "The problem," he 
explained, is that the government "has too much money" that 
it pours into a broad range of sectors, such as energy, 
telecommunications, and healthcare.  This, Sagadiyev 
continued, creates an unpredictable environment for the 
private sector, "scaring it away" and causing it to invest 
abroad.  Sagadiyev made clear what the government sees as the 
culprit:  "we've got a mess with oil and need to figure 
things out."  Further development of the oil sector in any 
case looks problematic, he added, as the infrastructure for 
transporting oil, "such as roads and port terminals," is 
lacking.  Moreover, Sagadiyev quoted President Nazarbayev as 
saying "I don't think we can do the Caspian without Russia." 
Finally, Sagadiyev added, no one knows how ecologically 
dangerous off-shore drilling really is.  "Too many people 
from the U.S.," he concluded, "come to Kazakhstan and say 
'Drill more, build more pipelines.' But it is not possible to 
do this." 
 
 
Reviewing Privatization Deals and Subsoil Contracts 
--------------------------------------------- ------ 
 
4. (C) Masimov briefed the Ambassador on two additional GOK 
initiatives to ensure that the state's interests were 
respected by private sector entities.  First, the GOK would 
 
ASTANA 00001240  002 OF 002 
 
 
review all past privatization deals in which the beneficiary 
had agreed to perform certain obligations -- for example, to 
create a certain number of jobs, or invest a defined quantity 
of money -- to see if the buyer had, indeed, performed those 
obligations.  Second, the GOK would review all subsoil use 
agreements, again to ensure that the contract terms were 
being respected. 
 
5. (C) While the GOK's intended review of privatization deals 
has not (yet) been publicized, Masimov has spoken publicly 
about the initia
tive to review subsoil contracts, and several 
Western oil companies have already experienced what they 
believe to be its effects.  In some contexts Masimov has 
focused his criticism on companies which obtain subsoil 
licenses but fail to invest and develop the field according 
to the agreed-upon schedule, presumably because the 
license-holders' interests are speculative, and their intent 
is to "flip" the asset rather than develop it. (The GOK 
recently passed legislation to stem this trend -- Ref D -- 
but appears to be making this issue a focus of its contract 
audits as well.)  In the same context, Masimov has also 
alluded publicly to the production delays and cost overruns 
bedeviling Kashagan field development (Ref E), perhaps laying 
the groundwork for a GOK attempt to penalize Kashagan 
partners for the disappointing results -- a battle which the 
Kashagan partners believe could happen as early as late 
summer, on the occasion of a broad project review.  Masimov 
has also pledged publicly to enforce contractual obligations 
to protect the rights, including wage equality, for 
Kazakhstani employees of foreign companies and joint ventures 
-- a hot topic, especially in the oil and gas sector, since 
the October 2006 "Tengiz riot" (Ref F).  (ConocoPhillips, for 
one, recently underwent a full-scale audit of its labor 
practices.) 
 
6. (C) The other area of recent increased GOK scrutiny has 
been in the area of environmental compliance. 
TengizChevrOil's (TCO) April 4 signature of a three-year, 
$800 million environmental spending plan against the backdrop 
of Ministry of Environment threats to revoke TCO's operating 
license is only the most-publicized example.  ExxonMobil's 
Government Relations Director, Patty Graham, told Energy 
Officer on April 25 that ExxonMobil has seen "a vast 
increase" in Environmental Ministry activity in 2007.  Other 
subsoil users -- CNPC Aktobemunaigas, KazakhOil Aktobe, 
Karachaganak Petroleum Operating Company, Karazhanbasmunai, 
PetroKazakhstan Kumkol Resources -- have all been cited in 
recent cases, most of which have been announced in the press. 
 
7. (C) Several oil industry analysts have taken the GOK's 
initiative to review subsoil contracts as a sign of its 
intent to maximize GOK revenue and force a revision of 
contracts which may have been signed on terms less favorable 
to the government than prevail in today's market for the 
country's oil assets.  Masimov, however, has been careful to 
underscore the GOK's respect for contract sanctity.  On April 
24, for example, when summing up his government's first 100 
days, Masimov declared that, "should both parties to a 
contract be fulfilling it, the contract will not be revised." 
 
8. (U) This cable has been cleared by S/R Mermoud. 
MILAS

Wikileaks

07ASTANA1143, KAZAKHSTAN: INFORMATION ON BAKER HUGHES’ FCPA CASE

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Reference ID Created Released Classification Origin
07ASTANA1143 2007-04-30 08:43 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXYZ0000
PP RUEHWEB

DE RUEHTA #1143 1200843
ZNY CCCCC ZZH
P 300843Z APR 07
FM AMEMBASSY ASTANA
TO SECSTATE WASHDC PRIORITY 9296

C O N F I D E N T I A L ASTANA 001143 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR SCA/CEN (M. O'MARA) 
 
E.O. 12958: DECL: 04/29/2017 
TAGS: ENRG EINV KZ
SUBJECT: KAZAKHSTAN: INFORMATION ON BAKER HUGHES' FCPA CASE 
SHARED WITH GOVERNMENT 
 
REF: STATE 54102 
 
Classified By: Ambassador John Ordway; reasons 1.4 (b) and (d). 
 
1. (C) Following receipt of reftel, Ambassador telephoned 
Prime Minister Masimov to inform him of the impending final 
court action and to ask how best to provide the GOK with the 
relevant court documents when they came available.  Masimov 
told the Ambassador to deliver them directly to him. 
 
2. (C) On April 26, after a larger meeting on a different 
issue, Ambassador had a brief one-on-one chat with the Prime 
Minister.  The Ambassador told Masimov that there was a 
question of how the USG would refer to the Kazakhstani 
persons who received the illegal payments.  Masimov said that 
he had no objection to the USG naming the principal official 
involved, and added that this approach would be far better 
than simply saying "Kazakhstani officials."  He said that 
noting that the illegal payments went to officials of 
specific state-owned enterprises would also be preferable to 
simply saying "Kazakhstani officials" which could provoke 
unwarranted speculation about the involvement of officials of 
the government itself. 
 
3. (C) On April 27, Ambassador delivered to Prime Minister 
Masimov copies of the SEC and DOJ press releases, along with 
a number of court documents provided to post by e-mail from 
SCA/CEN.  In the one-on-one meeting, Masimov expressed 
gratitude for the specificity in the two press releases, and 
for the information that had been provided.  Ambassador said 
that he was confident that the USG would cooperate with the 
GOK if the GOK wished to follow-up with its own investigation 
of the alleged Kazakhstani recipients of the illegal 
payments.  Masimov expressed his gratitude for the offer, but 
did not venture an opinion as to whether the GOK would in 
fact pursue the case. 
 
4. (C) Comment:  We understand that the principal figure in 
the case, Zhakyr Marabayev, has left his last job at 
KazMunaiGaz, the state-owned oil and gas company, and has 
essentially disappeared from the local scene.  Masimov, who 
knew exactly who Marabayev is, was totally dismissive about 
any negative consequences to his being named -- which 
strongly suggests that the GOK has no particular interest in 
defending him or his conduct.  There is some press 
speculation already that the GOK may in fact conduct an 
investigation, but we have no basis to confirm that at this 
stage.  End comment. 
ORDWAY

Wikileaks

07ASTANA1110, KAZAKHSTAN: CHEVRON MANAGER DISCUSSES ORENBURG

WikiLeaks Link

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If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol).Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #07ASTANA1110.
Reference ID Created Released Classification Origin
07ASTANA1110 2007-04-26 09:38 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO7861
PP RUEHDBU
DE RUEHTA #1110/01 1160938
ZNY CCCCC ZZH
P 260938Z APR 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 9259
INFO RUCNCIS/CIS COLLECTIVE 0142
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 03 ASTANA 001110 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
 
E.O. 12958: DECL: 04/25/2017 
TAGS: ENRG EPET KZ
SUBJECT: KAZAKHSTAN: CHEVRON MANAGER DISCUSSES ORENBURG 
DEAL, KCTS 
 
REF: A. ASTANA 563 
 
     B. 06 ALMATY 2273 
     C. 05 ALMATY 4264 
 
Classified By: Pol-Econ Chief Deborah Mennuti; reasons 1.5 (b) 
and (d). 
 
1. (C) Summary: Luis Coimbra, Marketing and Transportation 
Manager of Chevron's Eurasia Business Unit, briefed Energy 
Officer on April 24 on Chevron's vision for the Kazakhstan 
Caspian Transportation System (KCTS) and the status of the 
Gazprom-KazMunaiGaz (KMG) joint venture to expand the 
Orenburg Gas Processing Plant.  Coimbra contested the 
conventional wisdom that shipping more than 500,000 
barrels/day (b/d) of oil across the Caspian by tanker would 
create congestion and pose safety risks; with the planned 
40-60,000 dead-weight ton (DWT) vessels and state-of-the-art 
mooring technology, he said, the KCTS system could easily 
transport 1.5 million b/d.  On the Orenburg deal, Coimbra 
reported that the Karachaganak Petroleum Operating Company 
(KPO) had finally agreed on a price for the sale of its gas, 
but that the broader negotiations between Gazprom and KMG to 
expand the plant were "falling apart."  Coimbra said that the 
Kazakhstanis were increasingly interested in building a $1.5 
billion gas processing plant near Karachaganak in Kazakhstan. 
 This plant would not only serve Kazakhstan's domestic needs, 
Coimbra said, but potentially feed gas into the 
Central-Asia-Center (CAC) pipeline in a "swap" arrangement, 
freeing Turkmen gas to be exported via a proposed pipeline to 
China.  Coimbra confirmed that TengizChevrOil (TCO) had 
recently concluded a package of agreements for shipping 
second-generation Tengiz oil, including a two-year deal to 
ship approximately 90,000 b/d through the Baku-Tblisi-Ceyhan 
(BTC) pipeline. End Summary. 
 
 
Chevron's KCTS Vision 
--------------------- 
 
2. (C)  Coimbra, TCO's lead negotiator in the KCTS 
discussions,  described the process as "moving very slowly." 
TCO's entry into the negotiations, he said, had "saved a 
dying process," but there were still significant impediments 
to progress, including the Kazakhstanis' desire to consult 
with the Azeris "on every step," and Total's lack of 
efficiency in conducting assigned technical studies. 
Kazakhstan's failure to date to ratify the IGA (Ref A), he 
added, was an additional, looming problem. Among the 
substantive issues to be resolved, the maritime segment 
appeared to be the most complex, with the Azeris promoting 
the use of 12,000 DWT vessels (which the Azeris already 
owned), and the oil companies and the Kazakhstanis favoring 
larger, 40-60,000 DWT tankers.  TCO, Coimbra said, was 
advocating the following compromise: in the initial stages of 
the project, when only Tengiz oil was available, the 12,000 
DWT ships would be used, and would call exclusively at the 
Aktau port, which would be supplied by a spur of the main 
Eskene-Kuryk pipeline.  (This pipeline would initially be 
built to carry one million b/d, expandable to 1.5 million.) 
Later, in anticipation of Kashagan oil production, a second, 
deep-water terminal would be built at Kuryk to accommodate 
the larger vessels. (Coimbra noted that it appeared as though 
the Kazakhstanis were intent on shipping their share of the 
oil -- which would increase when the "cost recovery" phase of 
Tengiz production ended -- by tanker to Iran.  This oil, he 
said, would flow from the KazTransOil terminal in Aktau.) 
 
3. (C) Asked whether the anticipated vessel traffic across 
the Caspian posed serious safety and environmental concerns, 
Coimbra acknowledged that using "fifteen" 12,000 ton vessels 
was not ideal.  However, he said, once the 40-60,000 DWT 
vessels were incorporated, with dynamic positioning systems 
and state-of-the-art loading and unloading facilities, "even 
1.5 million b/d" was feasible without significant risk. 
 
Orenburg Expansion "Falling Apart"? 
----------------------------------- 
 
4. (C) Coimbra informed Energy Officer that KPO had recently 
reached an agreement with KazRozGaz on a long-term price for 
delivery of gas to Orenburg.  (Note: British Gas Deputy Asset 
General Manager Claire Hawkings confirmed on April 13 that 
the two parties had agreed on a short-term price, but told 
Energy Officer that they were still negotiating a formula for 
adapting that price to market prices.  End note.)  However, 
Coimbra said, negotiations between KazMunaiGaz and GazProm on 
 
ASTANA 00001110  002 OF 003 
 
 
the broader terms of the joint venture to expand the Orenburg 
plant were "falling apart."  While many issues remained 
unresolved, he said, one critical one concerned the pricing 
of Kazakhstani gas.  Of the 16 billion cubic meters (bcms) of 
gas which KPO envisioned shipping to Orenburg, he explained, 
half was allocated to the Kazakhstanis:  five for re-export 
to Kazakhstan for domestic use, and another three for sale to 
Europe at $147 / thousand cubic meters (tcm), the price which 
had been announced during the July 2006 G8 Summit.  However, 
Coimbra said, the Kazakhstanis wanted
 to take the five bcms 
needed for domestic use at the front end of the deal, and 
then split the remainder (11.5 bcms) with the Russians for 
sale at $147/tcm.  (Note: Prime Minister Masimov recently 
announced that the Orenburg discussions were near completion, 
and that the Orenburg joint venture could be finalized by 
mid-May.  End note.) 
 
5. (C) Coimbra told Energy Officer that the Kazakhstanis 
appeared to be serious about constructing a five bcm, $1-2 
billion gas processing plant near Karachaganak, on 
Kazakhstani soil.  The plant would be built under terms of 
the KPO Production Sharing Agreement, he said -- and thus KPO 
partners would be able to recover the construction costs. 
The Kazakhstani vision was to reduce gas injection at 
Karachaganak (provided the field engineers confirmed that 
this would have minimal impact on oil production) and thus 
obtain an additional five bcms of gas, beyond the 16 bcms 
destined for Orenburg.  The plant would be designed to be 
easily expanded to process much larger volumes of gas, should 
the Orenburg deal fall through.  (In this "worst case" 
scenario, Coimbra explained, KPO could reinject the gas until 
the proposed gas processing plant could be brought on-line.) 
 
 
6. (C) While the GOK idea was to use the proposed plant to 
serve domestic needs, Coimbra said, there was discussion of 
linking the plant to the nearby Central Asia Center (CAC) gas 
pipeline, and even of using the Karachaganak gas in a "swap" 
operation with Turkmen gas:  five bcms would be pulled from 
the CAC in to supply the proposed pipeline to China;  these 
volumes would then be replaced in the CAC pipeline by 
Karachaganak gas.  Coimbra rated the Chinese gas pipeline 
project as "likely," explaining that, even though Turkmen gas 
supplies might be doubtful, "the Chinese are ready to pay to 
build the whole thing anyway."  Under those terms, he said, 
the project was attractive to the Kazakhstanis, who were 
seeking not only to export gas, but also to supply gas to 
Almaty and other southern population centers. 
 
7. (C) Coimbra mentioned that Chevron was conduction a 
"Caspian area gas utilization study."  One of the feasible 
options being looked at, he said, was to locate a 
gas-to-liquids (GTL) plant in Aktau, and export diesel across 
the Caspian. 
 
Transport Solutions for Second Generation Tengiz Oil 
--------------------------------------------- ------- 
 
8. (C) Coimbra told Energy Officer that TCO had recently 
concluded a series of deals for the transportation of "Second 
Generation" Tengiz production.  Of the 100,000 b/d that would 
be shipped South (by rail to Aktau, then by tanker to Baku), 
he said, around 90,000 b/d would be shipped onward via the 
BTC pipeline, with the remainder sent by rail from Baku to 
both the Batumi and Kulevi terminals on the Black Sea. 
Coimbra indicated that TCO had signed a two-year deal with 
BTC, obtaining a "favorable" $3.50 / barrel "third party" 
price, rather than the $7 / barrel "owners' rate."  (In 
addition to shipping oil South, TCO will send second 
generation oil North, by rail to Odessa.  Refs B,C.) 
 
9. (C)  Coimbra confirmed media reports of a growing rivalry 
between the SOCAR-owned Kulevi terminal and the Batumi 
terminal, now partially-owned by KMG, suggesting that the 
Batumi terminal now looked far less profitable than when KMG 
had bought its stake.  (Note: In a March 13 conversation with 
Energy Officer, KazTransOil Executive Director Sabr 
Yessimbekov admitted that Kulevi appeared destined to be the 
principal oil-export terminal on the Black Sea.  KMG was 
adapting, Yessimbekov explained, by pursuing a deal to 
construct a 5-7 million ton oil refinery adjacent to the 
Batumi terminal, with an eye toward eventually exporting 
refined products from the Batumi terminal -- effectively 
ceding the crude export market to Kulevi.  End note.) 
 
Regional Pipelines: Keen Interest in BTC Expansion 
 
ASTANA 00001110  003 OF 003 
 
 
--------------------------------------------- ----- 
 
10. (C) Coimbra informed Energy Officer that pre-FID (Final 
Investment Decision) work was underway on BTC expansion, with 
approval by partners targeted for early 2008.  In order to 
make any progress on expansion, he confided, those BTC Co. 
partners with Caspian volumes to ship (like Chevron) would 
likely have to compensate those partners which did not. 
Coimbra added that Chevron, Exxon, and Shell were forming a 
consortium and performing pre-FID work for "another (35 
million ton) Baku-Supsa" pipeline.  The ongoing problems with 
the existing Baku-Supsa line (which has been down since 
November), he said, along with a longer and larger projected 
plateau for Azeri oil production, was driving increased 
interest in both BTC expansion and the second Baku-Supsa 
pipeline.  ExxonMobil and Shell were logical partners for the 
second Baku-Supsa project, he noted, because neither had BTC 
pipeline access. 
 
11. (C) Comment:  The fact that Coimbra judges the prospects 
of KPO building a gas processing plant near Karachaganak to 
be realistic is interesting.  The presence of gas processing 
infrastructure at that site, which could be expanded 
relatively cheaply when KPO's deal to supply gas to Orenburg 
expires (if, indeed, it is ever finalized), would contribute 
significantly to prospects for a Trans-Caspian gas pipeline. 
End Comment. 
ORDWAY

Wikileaks

07ASTANA984, KAZAKHSTAN: AES UPDATES AMBASSADOR ON BUSINESS

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Reference ID Created Released Classification Origin
07ASTANA984 2007-04-18 02:29 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO8721
PP RUEHDBU
DE RUEHTA #0984/01 1080229
ZNY CCCCC ZZH
P 180229Z APR 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 9106
INFO RUCNCIS/CIS COLLECTIVE 0129
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000984 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
 
E.O. 12958: DECL: 04/16/2015 
TAGS: ENRG EPET KZ
SUBJECT: KAZAKHSTAN: AES UPDATES AMBASSADOR ON BUSINESS 
INTERESTS, LEGAL ISSUES 
 
REF: A. ASTANA 908 
 
     B. 06 ALMATY 2054 
     C. ASTANA 580 
 
Classified By: Ambassador John Ordway; reasons 1.5 (b) and (d). 
 
1. (C) Summary:  AES's Dale Perry told the Ambassador on 
April 12 that "business is great" in Kazakhstan, despite 
ongoing legal disputes initiated by regional and local 
officials, and a general disagreement with regulators over 
the proper definition of monopoly power.  Perry noted that a 
draft Government of Kazakhstan (GOK) plan for the development 
of the electricity sector, which confirmed the GOK's intent 
to fully liberalize electricity prices, was so good "that AES 
could have written it."  Perry confirmed that AES was still 
pursuing an arrangement to provide 1000 MW to a proposed SUAL 
(now RUSAL) aluminum smelter in East Kazakhstan;  the Chinese 
appeared to have scuttled a project to build a 7200 MW 
coal-fired plant in the same region upon being informed by 
the GOK that they would have to build the plant according to 
high environmental standards.  Perry told the Ambassador that 
AES's enthusiasm for regional electricity projects had 
diminished, due to a "lack of evident solutions in 
Afghanistan," and reduced corporate tolerance for risk.  End 
summary. 
 
AES: Kudos for GOK's Electricity Policy.. 
----------------------------------------- 
 
2. (C) In an April 12 meeting with the Ambassador, Dale 
Perry, AES's Regional Director for Eastern Europe and the 
CIS, raved about the GOK's new (draft) plan for the 
development of the electricity sector, describing the plan as 
so encouraging that "you would have said AES wrote it."  Vice 
Energy Minister Satkaliyev had underscored the GOK's 
commitment to price liberalization earlier that day, telling 
Perry that "we're headed for a free (electricity) market." 
(Prime Minister Masimov recently told Ambassador that the GOK 
hoped to achieve full liberalization of the electricity 
market in 2008.  Ref A.)  Country Manager Mike Jonagan added 
that even AES's dealings with its industrial customers were 
much improved.  "They want real, Western-style contracts," he 
said, adding that the company had not had to take a wholesale 
customer to court in over two years.  In broad terms, Perry 
concluded, business "was great" in Kazakhstan. 
 
...While Fighting Corruption at the Regional and Local Level 
--------------------------------------------- --------------- 
 
3. (C) The most important remaining area of reform, Perry 
said, lay in the legal definition of a "monopoly" electricity 
provider, a concept with important legal implications for the 
GOK's right to regulate tariffs.  AES's most troublesome 
ongoing legal dispute, Perry explained, arose out of 
different interpretations of this law, with the GOK's 
Competition Protection Committee (CPC) arguing that AES had 
earned illegal monopoly profits in East Kazakhstan as a 
result of the company's near-dominant position in the oblast. 
 AES, in turn, believes that a company's market share should 
be assessed from a national, rather than an oblast, 
perspective. 
 
4. (C)  Perry told the Ambassador that the newly-appointed 
akim of East Kazakhstan Oblast, Zhanybek Karibzhanov, had 
encouraged the CPC to open a criminal investigation of AES's 
"monopoly profits" in order to pressure AES into lowering 
electricity tariffs for his new constituents.  AES had 
finally cut a deal with the akim, Perry explained, agreeing 
to lower tariffs to oblast retail customers by roughly 1 cent 
per kWh.  In return, the authorities agreed to drop the 
threatened criminal investigation into alleged monopolistic 
practices by AES employees, including AmCit Jim Doak.  The 
rate cut would cost AES $6 million, Jonagan estimated, but 
the company had little choice but to settle, as the company 
could scarcely function if its employees were subject to 
criminal charges. 
 
5. (C) AES was still vulnerable to more than $40 million in 
civil penalties in the case, Perry noted.  Perhaps more 
disturbingly, the same logic that had been applied to 
defining a monopoly in East Kazakhstan could be applied in 
Pavlodar oblast as well, where AES's Ekibastuz GRES I plant 
represented a far larger investment.  AES was pushing the GOK 
to clarify the monopoly laws, Perry concluded, warning the 
authorities that, while AES was preparing itself to invest 
$750 million in the upgrade of its Ekibastuz GRES I plant 
 
ASTANA 00000984  002 OF 002 
 
 
(Ref B), it would not undertake the investment until the 
monopoly laws were clarified. 
 
6. (C) Jonagan updated the Ambassador on another legal 
irritant -- a $3 million assessment against AES for improper 
storage of overburden at the company's Maikuben mine (Ref C). 
 AES had lost the case in court and on appeal, he explained. 
However, the company had recently convinced both Finance 
Minister Korzhova and Environmental Protection Minister 
Iskakov to listen to a taped conversation of
 a local 
environmental official threatening the legal action on the 
overburden issue if AES didn't pay him a $150,000 bribe. Upon 
hearing the tape, Jonagan said, both Ministers readily agreed 
to help facilitate the submission of evidence to the Supreme 
Court demonstrating that AES had, in fact, followed industry 
standards in disposing of the overburden.  AES was now 
hopeful, Jonagan concluded, that the Supreme Court would rule 
in its favor. 
 
Update on AES Business Ventures 
------------------------------- 
 
7. (C) Perry told the Ambassador that AES was still pursuing 
a deal to sell 1000 MW of electricity to SUAL (Siberian Ural 
Aluminum Company, now a part of the merged "United Company 
RUSAL") to power a planned aluminum smelter near Ekibastuz. 
Since the same company, Access Industries, owned both AES's 
largest coal supplier, Bogatyr Access Komir, and 30% of SUAL, 
Perry explained, AES's sale of electricity to the smelter 
would constitute a "tolling" arrangement, with United Company 
RUSAL essentially "renting" two of AES's Gres I 500 MW 
generating blocks to transform its own coal into electricity. 
However, Perry noted, there was talk of including Bogatyr 
Access Komir in the "United Company RUSAL" deal.  If that 
happened, Perry said, the GOK might exercise its "preemptive 
rights" to buy some or all of Bogatyr Access Komir, rendering 
the "tolling" agreement more complex. 
 
8. (C) Asked for news on the Chinese initiative to build a 
7200 MW coal-fired plant in NE Kazakhstan (Refs B,C), Perry 
told Ambassador Ordway that the project appeared to be 
"dead."  The GOK insisted that the Chinese build the new 
plant to modern, high environmental standards, Perry said. 
The Chinese objected, arguing that they shouldn't be held to 
a higher standard than the existing, "dirty" coal plants in 
the region (including AES's GRES I).  However, Perry 
concluded, the GOK hadn't backed down, and the deal appeared 
to be dead. (In an April 10 conversation with Ambassador 
Ordway, Presidential Advisor Vladimir Shkolnik confirmed that 
the Chinese initiative had lost momentum.) 
 
9. (C) Perry voiced skepticism about AES's involvement in 
efforts to deliver Central Asian power to Afghanistan and 
Pakistan.  AES might be interested in investing in CHP 
(combined heat/power) plants in Kyrgystan, he said, but "we 
see no solutions in Afghanistan," and thus had dwindling 
interest in Tajikistan.  AES's (forced) sale of Electricidad 
de Caracas in Venezuela, he explained, had significantly 
lowered the company's tolerance for risk elsewhere. "Maybe we 
would still look at a project bringing electricity north to 
Almaty," he concluded. 
ORDWAY

Wikileaks

07ASTANA943, ROBERT DEUTSCH DISCUSSES AFGHANISTAN, REGIONAL

WikiLeaks Link

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Reference ID Created Released Classification Origin
07ASTANA943 2007-04-13 01:20 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO3490
PP RUEHDBU
DE RUEHTA #0943/01 1030120
ZNY CCCCC ZZH
P 130120Z APR 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 9068
INFO RUCNCIS/CIS COLLECTIVE 0122
RUEHIL/AMEMBASSY ISLAMABAD 2112
RUEHBUL/AMEMBASSY KABUL 0312
RUEHNE/AMEMBASSY NEW DELHI 0442
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 03 ASTANA 000943 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
COMMERCE FOR ADVOCACY CENTER: BLOPP 
DEPT PASS USTR 
 
E.O. 12958: DECL: 04/12/2017 
TAGS: ECON ENRG ETRD KZ
SUBJECT: ROBERT DEUTSCH DISCUSSES AFGHANISTAN, REGIONAL 
INTEGRATION  WITH KAZAKHSTANI OFFICIALS 
 
REF: A. ASTANA 753 
 
     B. ASTANA 908 
 
Classified By: Ambassador John Ordway; reasons 1.5(b) and (d). 
 
1. (C) Summary: SCA Senior Advisor Robert Deutsch briefed 
Deputy Foreign Minister Nurlan Yermekbayev on U.S. 
reconstruction efforts in Afghanistan on April 6 in Astana, 
receiving in turn a brief of Yermekbayev's recent trip to 
Kabul as head of a public-private Kazakhstani delegation. 
Yermekbayev urged the USG to raise the issue of Kazakhstan's 
assistance to Afghanistan at the ministerial level whenever 
possible, in order to help overcome skepticism within the GOK 
over Kazakhkstan's role.  Deputy Minister of Trade and 
Industry Aitzhanova asked Deutsch to communicate a different 
message in Washington: the need for the USG to be more 
aggressive in urging Kazakhstan's Central Asian neighbors to 
play a more constructive role in the next round of TIFA 
negotiations.  Deutsch discussed a recent World Bank study on 
regional transportation facilitation with World Bank and 
private sector representatives, exploring ways in which the 
inefficiencies in regional transport trade could be addressed 
by means of a "public-private partnership."  Kazakhstani 
electricity experts briefed Deutsch on GOK plans to expand 
generation capacity to meet anticipated electricity deficits 
in the South.  End summary. 
 
Afghanistan 
----------- 
 
2. (C) In Kazakhstan to attend the USTDA-sponsored Regional 
Telecommunications Conference, SCA Senior Advisor Robert 
Deutsch conducted meetings on broader regional issues in 
Astana on April 7.  Deutsch began by providing Deputy Foreign 
Minister Yermekbayev with an overview of the USG Afghanistan 
reconstruction efforts, responding to Yermekbayev's earlier 
expression of interest to the DCM.  Yermekbayev commented on 
the utility of the spending and budget figures, telling 
Deutsch that "we can use this to benchmark our goals with 
other ministries."  In general, he said, "we have a will to 
participate more actively" in Afghanistan, but "it is not so 
easy to convince GOK officials" that it should be a priority. 
Perhaps the USG could help, he suggested, by "reminding other 
ministers" of the importance of Afghanistan reconstruction. 
 
3. (C) Yermekbayev described his recent two-day trip to Kabul 
as Head of a delegation composed of government and private 
sector representatives.  He had left with the impression that 
"there will not be peace in Afghanistan until the foreign 
military leaves, especially the Americans and British. 
Still, withdrawal now would lead to further ethnic clashes." 
Commenting on the mixed government/business delegation, 
Yermekbayev explained that the GOK approach was to allow the 
"big companies" to pursue investments ("or not"), based on 
their business interests, while the GOK focused on long-term 
"social assistance programs" -- including, potentially, 
"building hospitals, schools, roads, grain elevators." 
 
4. (C) Later in the day, Vice Minister of Industry and Trade 
Kuandyk Bishimbayev told Deutsch that he, too, had 
participated in the recent GOK delegation to Afghanistan, and 
in fact was the head of an "inter-governmental commission" 
charged with exploring possible "areas of interest." 
(Bishimbayev said that he hoped to sponsor the first 
commission meeting in August or September.) The Ministry of 
Foreign Affairs had the lead in creating an "assistance 
program," he explained, while his efforts were focused on 
helping Kazakhstani businesses identify investment 
opportunities. 
 
TIFA 
---- 
 
5. (C) Zhanar Aitzhanova, Vice Minister of Industry and Trade 
(and Kazakhstan's Special Representative at WTO Accession 
Negotiations), used the occasion of her meeting with Deutsch 
to deliver a message about TIFA. The process was 
"slow-going," she said, due to its regional nature and a 
"lack of enthusiasm" from all parties except Kazakhstan and 
the U.S.  "The USG needs to work more with other governments 
 
ASTANA 00000943  002 OF 003 
 
 
in the region" to advance the project, she urged. 
Kazakhstan, she added, was poorly placed to do so:  "we don't 
want to offend Uzbekistan by looking like a regional leader." 
 Aitzhanova indicated that the GOK intended to use the TIFA 
process to advance its WTO agenda because, unlike the WTO 
discussions, TIFA allowed the Kazakhstanis "an opportunity to 
talk on a more equal basis with the USTR."  Aitzhanova noted 
that she would be in Washington on April 17 for bilateral WTO 
negotiations. 
 
Transportation 
-------------- 
 
6. (SBU) In Almaty, Deutsch discussed cross-border trade 
facilitation with Munavara Patasheva of the Forum of 
Entrepreneurs of Kazakhstan, and World Bank official Aslan
 
Sarinzhipov.  The meeting focused on the findings of a recent 
World Bank-funded study of time and cost issues (including 
"unofficial" payments") affecting seven regional transport 
corridors.   The results of the study have been shared with 
government officials in Kazakhstan, Kyrgyzstan, and 
Tajikistan, and appear to provide a basis for expanded 
public-private dialogue on this key issue.  (The Forum of 
Entrepreneurs, along with other regional business 
associations, gathered data and observations for the study, 
and is thus well-positioned to advocate their interests based 
on the results obtained.) 
 
7. (C) Yerlan Sagadiyev, Advisor to the Prime Minister, 
outlined a different transportation vision over lunch in 
Astana on April 7.  Sagadiyev described growing interest in a 
"multi-modal" transportation corridor across Kazakhstan 
linking China to Western markets.  According to Sagadiyev's 
vision, a single right-of-way for a raildroad, road, and 
telecommunications fiber, linked to port and trans-Caspian 
shipping facilities, could potentially cut 11 days off the 
transit time of Chinese goods to Europe.  Given projected 
volumes of Chinese trade, particularly in perishable goods, 
Kazakhstan was well-positioned to enhance its role as a 
transit country. 
 
Electricity 
----------- 
 
8. (C) Deutsch discussed electricity issues in a series of 
meetings with Samruk (national holding company) and Energy 
Ministry Officials.  Referencing the GOK's recent evaluation 
of electricity balances through 2105 (Ref A), the Head of the 
Energy Ministry's Office of Electrical Energy Reform, Kanysh 
Moldabayev, told Deutsch that, in order to meet projected 
electricity deficits in the South, both new generation plants 
and renovations of existing plants would be required.  The 
GOK study calculated that a wholesale tariff of 3.5 cents / 
kWh would be needed to attract sufficient private investment 
in generation capacity, he said.  If the rate was not 
sufficient, the GOK would consider financing construction 
from the Republican budget, or through private / public 
partnerships.  (Note: Prime Minister Masimov told Ambassador 
Ordway on April 9 that his goal was to achieve entirely free, 
market-determined tariffs "next year." Ref B. End note.) 
Samruk CFO Ulf Wokurka lamented the fact that, to date, only 
8-10% of wholesale electricity trades were conducted on the 
"spot" market, short of the 25% goal set for the 
Samruk-managed wholesale market operator, KOREM.  While 
having 90% of wholesale trades governed by bilateral 
agreements between generator and customer might not seem like 
a bad thing, he explained, each agreement represented a 
potential "sweetheart" deal, or an opportunity for the abuse 
of political power, and thus was best avoided. 
 
9. (C) On the subject of regional electricity integration, 
Samruk's Head of the Electricity (KEGOC) Group, Esbergen 
Abitayev, took pains to underscore that it was only 
"recently," with the construction of a 500 kV North-South 
transmission line, that Kazakhstan's own electricity market 
became "integrated."  Significant electricity trade took 
place in the North, across the Russian border; fewer, mostly 
seasonal volumes, occurred in the South.  Speaking of 
investments in generation capacity, Abitayev told Deutsch 
that the Kyrgyz government had invited Samruk to participate 
 
ASTANA 00000943  003 OF 003 
 
 
in a "joint pre-feasibility" study (along with RAO UES) of 
the Kambarata hydro project.  The study, he said, "will 
include a chapter on markets in South Asia and Afghanistan." 
Turning to Tajikistan, Abitayev noted that Rogun was a 
relatively attractive project, with much cheaper costs per 
kilowatt than in Kyrgystan.  "We are studying the Tajik 
market closely," he concluded. 
 
10. (U) Robert Deutsch has cleared this cable. 
ORDWAY

Wikileaks

07ASTANA848, KAZAKHSTAN: EXXONMOBIL PURSUING ONSHORE

WikiLeaks Link

To understand the justification used for the classification of each cable, please use this WikiSource article as reference.
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If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol).Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #07ASTANA848.
Reference ID Created Released Classification Origin
07ASTANA848 2007-04-03 08:58 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO2780
PP RUEHDBU
DE RUEHTA #0848/01 0930858
ZNY CCCCC ZZH
P 030858Z APR 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 8980
INFO RUCNCIS/CIS COLLECTIVE 0109
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000848 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
COMMERCE FOR ADVOCACY CENTER: BLOPP 
 
E.O. 12958: DECL: 04/02/2017 
TAGS: ENRG EPET KZ
SUBJECT: KAZAKHSTAN: EXXONMOBIL PURSUING ONSHORE 
PARTNERSHIP WITH KAZMUNAIGAZ SUBSIDIARY 
 
REF: 06 ASTANA 3178 
 
Classified By: Ambassador John Ordway; reasons 1.5(b) and (d). 
 
1. (C) Summary: Rick Vierbuchen, Vice President of ExxonMobil 
Exploration Company, informed Ambassador Ordway on March 28 
that ExxonMobil is negotiating a long-term partnership with 
KazMunaiGaz's (KMG) onshore exploration and production 
subsidiary (KMG E&P) to evaluate, acquire acreage, and 
potentially develop, acreage on Kazakhstan's northern Caspian 
shore.  Vierbuchen told the Ambassador that he had traveled 
to Kazakhstan hoping to finalize the deal, only to be told by 
KMG (parent company) President Uzakbay Karabalin that, before 
signing off on the deal, KMG needed to "sort out" KMG E&P's 
relationship with the GOK, and with KMG, following KMG E&P's 
partial privatization in September (reftel). In fact, 
Vierbuchen explained, KMG appeared to be questioning whether 
KMG E&P should, in principle, sign an "exclusivity" agreement 
covering such a large area with an international oil company 
(IOC), given that KMG E&P's "preferential rights" to that 
acreage would then be conferred indirectly upon the IOC. 
Vierbuchen asked for Embassy assistance in clarifying GOK 
intentions, and, potentially, in pursuing the deal. 
Ambassador Ordway agreed to help, while reminding Vierbuchen 
of the requirements of the advocacy process.  End Summary. 
 
ExxonMobil VP Describes New Business Interest... 
--------------------------------------------- --- 
 
2. (C) Vierbuchen, VP of the company's Caspian and Middle 
East operations, opened the March 28 meeting with a smile, 
telling the Ambassador that, though it might seem 
"masochistic" in light of Kashagan delays and the stalled CPC 
negotiations, he had come to Kazakhstan to seek new business. 
 ExxonMobil, he explained, was negotiating a "long-term" 
partnership with KMG E&P to evaluate, acquire, and 
potentially develop acreage on Kazakhstan's North Caspian 
shore.  (For details on the project, see paragraph 5.)  The 
deal had generated "a lot of low-level interest" in KMG, 
Vierbuchen explained, and he had traveled to Kazakhstan in 
hopes of finalizing the deal.  However, Karabalin had told 
him earlier in the day that KMG needed time to "sort out" KMG 
E&P's relationship with KMG, and with the GOK, following KMG 
E&P's partial privatization in September.  (Note: 
Approximately 40% of the company was sold on London's AIM and 
the Kazakhstan Stock Exchange.  End note.) 
 
3. (C) Karabalin, Vierbuchen continued, had also voiced 
concern whether KMG E&P should rightfully sign an exclusivity 
agreement, governing such a large area, with an IOC, 
particularly in light of KMG E&P's existing "preferential 
rights" to onshore acreage.  (Note: By virtue of a renewable, 
one-year "services agreement" with KMG, KMG E&P enjoys 
preferential access to unlicensed onshore oil and gas 
acreage.  The company is also the beneficiary of the State's 
"right of first refusal" upon the transfer of existing 
onshore contracts.) 
 
..and Asks for USG Assistance 
----------------------------- 
 
4. (C) Vierbuchen asked the Ambassador for help in discerning 
whether Kazakhstan's decision-makers were, in fact, seriously 
reassessing KMG E&P's role (and priority rights) in light of 
the partial IPO.  Vierbuchen also asked if, depending on the 
answers received, the Embassy would be willing to advocate 
for EM's business interest.  Ambassador Ordway told 
Vierbuchen that the USG would be happy to help in any way it 
could, subject to the legal and formal requirements of the 
advocacy process. 
 
Details of ExxonMobil's Potential Project 
----------------------------------------- 
 
5. (C) Vierbuchen characterized the new venture as "high 
risk," in part because of the relative lack of seismic data 
covering the deep strata.  The venture was decidedly 
long-term, he added, with "first oil" likely ten years away. 
The partners would first perform a "Joint Technical Study," 
including a high-definition aeromagnetic survey, over a broad 
section of the onshore.  Once promising areas were identified 
within a smaller (but still vast) "Area of Mutual Interest" 
(AMI), the partners would pursue the rights to the relevant 
acreage, either by farming-in with current owners or waiting 
until the assets were sold or licenses expired (whereupon KMG 
 
ASTANA 00000848  002 OF 002 
 
 
E&P's preferential rights could be exercised).  Only when 
this was accomplished would full production begin. 
 
6. (C) On March 29, ExxonMobil Exploration Company's 
Astana-based representative, Peter Claypoole, showed Energy 
Officer a map of the proposed AMI. The AMI extends 
approximately 100-125 kilometers inland from the Caspian Sea 
all the way around the North Caspian from the Tengiz oil 
field to the Russian border.  Claypoole explained that the 
existing leaseholders -- including British "Max Petroleum" 
and China's SINOPEC -- were currently producing oil from 
tec
hnically-easy, shallow reservoirs, while attempting to do 
what ExxonMobil was proposing to do -- conduct difficult, 
expensive seismic surveys of the deep strata whose 
characteristics were largely hidden from seismic view by 
intervening "salt caps."  These strata, Claypoole explained, 
were the same strata in which the bulk of offshore Kashagan 
reserves lay, as well as other major finds throughout the 
geological basin.  However, both because the strata were even 
deeper onshore than off, and because the intervening salt 
"cap" dissipated seismic signals, relatively little was known 
about potential reserves.  Claypoole noted that the technical 
challenges also meant that companies like Max Petroleum or 
SINOPEC -- or KMG E&P, for that matter -- were unlikely to be 
able to analyze or develop the structures on their own, 
making it more likely that the ExxonMobil/KMG E&P partnership 
would be able to obtain the relevant acreage in time. 
 
7. (C) Comment:  It would surprise us if the GOK were 
seriously considering rescinding KMG E&P's "preferential 
rights" due to the company's 40% IPO.  After all, KMG E&P 
aggressively marketed the existence of those rights in the 
run-up to the IPO, and their existence presumably does much 
to justify the current share price.  The GOK's more likely 
concern is whether it makes strategic sense for KMG E&P to 
bind itself to a single international company in the 
development of such a large portion of its onshore. 
Furthermore, it is one thing for ExxonMobil to succeed in 
promoting itself at the "working" (KMG E&P) level for a 
project like this; it is an entirely different matter to 
succeed at the "political" level (Karabalin and above), where 
ExxonMobil's current reputation as CPC expansion spoiler will 
likely lengthen the odds against it in this bid for new 
business.  End comment. 
ORDWAY

Wikileaks

07ASTANA753, KAZAKHSTAN TO BUILD COAL-FIRED POWER PLANT IN THE

WikiLeaks Link

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Reference ID Created Released Classification Origin
07ASTANA753 2007-03-28 02:26 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO7127
PP RUEHDBU
DE RUEHTA #0753/01 0870226
ZNY CCCCC ZZH
P 280226Z MAR 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 8883
INFO RUCNCIS/CIS COLLECTIVE 0105
RUEHIL/AMEMBASSY ISLAMABAD 2109
RUEHBUL/AMEMBASSY KABUL 0308
RUEHNE/AMEMBASSY NEW DELHI 0437
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000753 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA), SCA/FO (DEUTSCH) 
 
E.O. 12958: DECL: 03/26/2017 
TAGS: ENRG EPET KZ
SUBJECT: KAZAKHSTAN TO BUILD COAL-FIRED POWER PLANT IN THE 
SOUTH? 
 
REF: A. 06 ALMATY 602 
     B. 06 ASTANA 899 
 
Classified By: Political-Economic Chief Deborah Mennuti, 
reasons 1.5(b) and (d). 
 
1. (C) Summary:  Spurred by recent analysis forecasting a 
significant electricity deficit in Southern Kazakhstan by 
2015, the Government of Kazakhstan (GOK) has reportedly 
decided to build a 2000 MW coal-fired plant at the southern 
tip of Lake Balkhash.  Energy Ministry sources report that 
President Nazarbayev's mention of the project in his February 
28 Annual Address confirmed that the GOK will follow the 
recommendations of a soon-to-be-released Samruk (the national 
holding company for state-owned assets) study, which ranked a 
Balkhash coal plant ahead of other options -- including the 
construction of a nuclear power plant at the same site -- for 
expansion of the country's generation capacity. On March 7, 
newly-appointed Energy Vice Minister Satkaliyev told Energy 
Officer that the Balkhash plant, along with a constellation 
of planned hydro projects, will greatly enhance Kazakhstan's 
potential electricity exports to the South, and asked to be 
included in future discussions concerning regional 
electricity integration.  While the GOK is still pursuing the 
idea of constructing a nuclear plant in Aktau (Ref A), the 
project may have suffered a setback with Prime Minister 
Akhmetov's departure from office and funding for a 
pre-feasibility study reportedly still awaiting government 
budgetary approval. End summary. 
 
Nazarbayev Tips Scales Toward Balkhash Coal Plant 
--------------------------------------------- ---- 
 
2. (C) Recently-appointed Vice Minister of Energy and Mineral 
Resources Almasadam Satkaliyev told Energy Officer on March 7 
that, in his February 28 annual address to the Nation, 
President Nazarbayev called for the construction of a 
coal-fired combined heat-and-power (CHP) plant at the 
southern tip of Lake Balkhash. (Satkaliyev explained that, 
although the word "Balkhash" had not entered into the 
official transcripts of the speech, Nazarbayev's words had 
been unmistakable.)  Nazarbayev's "instruction," Satkaliyev 
said, anticipated the results of a soon-to-be-released $2 
million, Samruk-sponsored pre-feasibility study which he, 
Satkaliyev, had overseen in his previous job as head of the 
"KEGOC" (electricity transmission) group within Samruk.  The 
Samruk study, he explained, had ranked three alternative 
projects: the Balkhash coal plant; a nuclear plant at the 
same location; and increased coal-fired capacity in Northeast 
Kazakhstan (achieved either by renovation of existing 
facilities or new construction), linked to the South by means 
of an additional (third) high-voltage transmission line. 
 
Coal Instead of Nuclear: Simple Economics...or More? 
--------------------------------------------- ------- 
 
3. (C) On March 16, Yevgeniy Ryaskov, Deputy Director of the 
Energy Ministry's Office for Management of State Assets, 
provided Energy Officer with additional insight into why the 
GOK favors the construction of a thermal plant in Balkhash 
rather than a nuclear plant.  The Kazakhstan Institute of 
Energy, Ryaskov explained, recently completed an influential 
study suggesting that Kazakhstan would face an electricity 
deficit in the South by 2015.  The study, he added, reversed 
the Institute's previous research, which had suggested that 
supply would keep pace with demand through 2025.  The Balkash 
CHP, Ryaskov continued, could be built by 2015 (in 
Satkaliyev's estimation, the plant will generate 500 MW by 
2012 and 2000 MW by 2015), while construction of a nuclear 
plant would take a decade or more.  Thus, Rysaskov concluded, 
it was logical to favor a coal plant over a nuclear one. 
 
4. (C) Satkaliyev hinted that former Prime Minister Daniyal 
Akmetov's departure from office had contributed to a 
fundamental shift among Kazakhstani decision-makers toward 
coal power and away from nuclear power.  In December, while 
still at Samruk, Satkaliyev told Energy Officer that "there 
are no fans of nuclear energy at Samruk," opining then that 
Kazakhstan's future lay with "clean coal" technology.  Asked 
in March what had become of Akhmetov's well-publicized drive 
to advance the nuclear agenda, Satkaliyev replied that 
Akhmetov's program had been "stopped in the pre-feasibility 
 
ASTANA 00000753  002 OF 002 
 
 
stage" of the GOK budgetary process.  The GOK was still 
considering financing a pre-feasibility study for the 
construction of two 300 MW nuclear-powered turbines in Aktau, 
he explained, but the project was "not very advanced or very 
certain."  (As reported in Ref B, the GOK seriously 
considered moving KazAtomProm, the national atomic energy 
company, under Samruk management in late 2006.  Samruk's 
current head of the "KEGOC" group, Esbergen Abitayev, hinted 
to Energy Officer that the move -- which KazAtomProm had 
rebuffed -- had been, in effect, a hostile takeov
er attempt 
by Samruk.) 
 
5. (C) Ryaskov, by contrast, defended the economic 
feasibility of a nuclear power station sited in Aktau. Given 
the prices Kazakhstan currently receives for its natural gas 
on the Russian border ($145 per thousand cubic meters, by his 
estimation), he explained, it would be cheaper, in the long 
run, to build and operate a nuclear plant in Aktau rather 
than continue to generate electricity from gas. 
 
Balkash CHP to Facilitate Kazakhstani Electricity Exports? 
--------------------------------------------- ------------- 
 
6. (C) Satkaliyev told Energy Officer that the forecasts of 
an electricity deficit in the South had been incorporated 
into a new "action plan" for the development of the 
electricity sector to the year 2015, which was currently in 
the GOK approval process.  Satkaliyev explained that the 
document -- which, according to press reports, calls for $15 
billion in near-term electricity investments -- envisages a 
"constellation" of hydroelectricity projects which, anchored 
by the Balkhash CHP, will eventually create an exportable 
surplus of electricity in Kazakhstan's South.  Reminded of 
the USG's initiative to promote regional electricity trade 
and integration, Satkaliyev responded enthusiastically, 
stating that the Balkash project made such a regional outlook 
necessary for the first time.  Satkaliyev added that he 
personally would like to participate in future discussions of 
regional electricity integration. 
 
7. (C) Comment:  Satkaliyev is the first senior Energy 
Ministry official we have met who appears to grasp the 
potential for Kazakhstan of a regional approach to 
electricity generation.  While his track record is still 
short, Satkaliyev's reputation as a market-oriented, 
progressive thinker (and, it is rumored, a Timur Kulibayev 
protege) gives hope that he may bring greater reliance on 
market principles to Kazakhstan's energy policy and be a 
reliable, useful interlocutor on regional issues. End comment. 
ORDWAY

Wikileaks

07ASTANA684, KAZAKHSTAN: GOK CONFIRMS “N BLOCK” PROCESS DELAYED

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Reference ID Created Released Classification Origin
07ASTANA684 2007-03-16 10:37 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO7483
PP RUEHDBU
DE RUEHTA #0684/01 0751037
ZNY CCCCC ZZH
P 161037Z MAR 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 8805
INFO RUCNCIS/CIS COLLECTIVE 0098
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000684 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
COMMERCE FOR ADVOCACY CENTER: BLOPP 
 
E.O. 12958: DECL: 03/16/2017 
TAGS: ENRG EPET KZ
SUBJECT: KAZAKHSTAN: GOK CONFIRMS "N BLOCK" PROCESS DELAYED 
 
REF: ASTANA 562 
 
Classified By: Pol-Econ Chief Deborah Mennuti; reasons 1.5(b) and (d). 
 
1. (C) Summary: On March 15, ConocoPhillips (CP) executives 
briefed Energy Officer on CP CEO Jim Mulva's March 5 meetings 
in Astana, during which GOK officials reiterated the recent 
bad news about CP's "N Block" bid due to a GOK desire to 
re-evaluate "N Block" reserves, all commercial negotiations 
have been suspended for at least 4-6 months.  Furthermore, 
Mulva was told, the GOK could not guarantee that CP and Shell 
would retain their current negotiating exclusivity when (and 
even "if") discussions resumed.  While all of Mulva's 
interlocutors explained that a desire to reassess "N Block" 
reserves had driven the GOK's decision to suspend 
negotiations, Prime Minister Masimov also suggested to Mulva 
that the GOK would use the 4-6 months to assess "N Block" 
transportation options -- leading the CP executives to 
speculate that CPC expansion delays may have contributed to 
the "N Block" decision.  The executives advanced other 
hypotheses as well -- that Kashagan delays and cost overruns 
have convinced the GOK that it must do more to extract 
maximum value from future Production Sharing Agreements 
(PSAs); that the GOK might be trying to slow the pace of 
offshore development in the face of a shortage of skilled 
Kazakhstani executives and laborers; and that the GOK is 
determined to better leverage the competition for offshore 
blocks to achieve economic diversification.  The CP 
executives concluded, however, that the GOK reversal remains, 
fundamentally, a mystery, and asked for "high-level" USG 
help, both to discover the full reasons for the "N Block" 
policy shift -- and, if possible, to reverse it.  End 
summary. 
 
Delays of 4-6 Months "Or More" 
------------------------------ 
 
2. (C) Arne Holhjem (Caspian Region President), Tim Wallace 
(Russia/Caspian Exploration Manager), and Nick Olds 
(Kazakhstan Country Manager) briefed Energy Officer on CEO 
Jim Mulva's March 5 meetings with Prime Minister Masimov, 
Energy Minister Izmukhambetov, and KazMunaiGaz (KMG) 
President Karabalin.  Both Karabalin and Izmukhambetov had 
repeated the basic bad news:  all "N Block" negotiations had 
been suspended, pending the completion of an "internal" (KMG) 
study of the "N" block reservoir (reftel).  Karabalin told 
Mulva that the study would take 4-6 months to complete; 
Izmukhambetov had warned that the process could take "a year 
or two."  "Don't get your hopes up," he warned Mulva. 
Masimov had sounded an even more ominous note, suggesting 
that, given transportation limitations, he could see no way 
to monetize "N" hydrocarbons quickly.  "I can't see the near 
term value of 'N Block'," he said, adding that, in addition 
to reassessing "N Block" reserves, the GOK would also be 
taking a close look at available oil and gas transportation 
alternatives. Masimov told Mulva that, in the face of all 
these issues, "we may keep "N" for future generations." 
 
3. (C) Karabalin and Izmukhambetov warned Mulva that CP 
should not assume that, once resumed, the "N Block" 
negotiation process would take up where it had left off. 
Neither CP nor Shell were guaranteed preferential negotiating 
rights; the GOK might decide to open up the process to 
outside bidders.  (Note: the CP executives told Energy 
Officer that they were not aware of any new competitors 
whose interest might have sparked the GOK's decision.  While 
the German company Wintershall was rumored to be interested, 
the company had bid unsuccessfully on "N" years ago, and 
didn't appear to bring much to the table.  National Oil 
Companies were a bigger potential threat, but CP had no 
evidence that any were pursuing "N."  End Note.)  Finally, 
Mulva was told, KMG might decide to develop "N" all by 
itself. 
 
Speculating on GOK Motives 
-------------------------- 
 
4. (C) Wallace told Energy Officer that, while the GOK 
appeared to have shifted its stance in "late December, it 
wasn't clear why.  CP, he said, had no evidence the KMG had 
acquired new seismic data; their "internal study" would 
likely only reinterpret existing data.  Wallace speculated 
that perhaps the intensity of Shell / CP competition for "N" 
had spooked the Kazakhstani government into thinking that the 
companies knew something about "N" reserves that it did not. 
In general, the CP executives said, Kazakhstan's oil-and-gas 
 
ASTANA 00000684  002 OF 002 
 
 
decision-makers appeared afraid to sign any deal that might 
later be seen has having conceded too much to an 
international oil company.  The GOK had long seen the Tengiz 
deal in that light, Holhjem said, and the current Kashagan 
delays and cost-overruns had focused the GOK's attention on 
the fact that, given the cost-recovery provisions of the 
Kashagan Production Sharing Agreement (PSA), it would not 
receive substantial profits from the project for a decade or 
more. 
 
5. (C) Wallace explained that Mulva had also come away from &#x00
0A;his Astana meetings, and subsequent consultations in Moscow, 
with the impression that the Kazakhstanis were increasingly 
troubled by CPC expansion delays and the effect failed 
negotiations would have on Kazakhstan's oil transportation 
plans. Masimov (para. 2) had raised the issue in terms of 
"N's" oil output, while both Izmukhambetov and Karabalin had 
placed new, strong emphasis on CP's need to develop "gas 
transportation options" as part of any future "N" bid.  While 
Karabalin had noted that the Kazakhstanis supported the 
Trans-Caspian gas pipeline initiative, Wallace explained, the 
Kazakhstanis clearly were not focused solely on that project, 
and had asked CP to look at Gas-to-Liquids (GTL) and 
Liquefied Natural Gas (LNG) options as possible means to 
transport "N" Block gas.  "They are clearly very motivated to 
get gas to market," Wallace concluded. 
 
6. (C) Holhjem suggested that the GOK might be trying to slow 
down the overall development of its offshore sector, in the 
face of a shortage of not only skilled laborers and 
engineers, but also of skilled managers and executives within 
KMG and KazMunaiTeniz, its offshore operating subsidiary. The 
Kashagan project alone was currently short "a couple of 
thousand workers," he noted, and the Tengiz riots had made 
the GOK authorities more loathe than ever to try to meet the 
shortfall by bringing in foreign workers. 
 
7. (C) Olds explained that, even in the best-case scenario, 
CP would likely have to submit an entirely new, improved 
proposal for "N" block development once KMG's reservoir study 
was completed.  Mulva's interlocutors had encouraged CP to 
take a "holistic" approach in its future bids,  "in line with 
the President's recent address."  Thus, CP's bid should 
address the issues of economic diversification (principally, 
but not exclusively, by means of a petrochemical proposal), 
technology transfer, and the creation of infrastructure which 
would benefit other, non-hydrocarbon, industries.  As a 
consequence, Olds said, CP would likely re-evaluate its 
approach to the petrochemical issue. Olds reported that, to 
Mulva's surprise, Karabalin had also underscored Kazakhstan's 
interest in biofuel. 
 
8. (C) Comment:  While the CP executives -- clearly dejected 
by this turn of events -- give the impression that the GOK 
decision to suspend "N Block" negotiations is hard and fast, 
we will, of course, use every suitable opportunity to remind 
our GOK interlocutors of the high-level assurances we (and 
CP) received in December.  End comment. 
ORDWAY

Wikileaks

07ASTANA563, KAZAKHSTAN: KMG EXECUTIVE DISCUSSES KCTS PROCESS

WikiLeaks Link

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Reference ID Created Released Classification Origin
07ASTANA563 2007-03-02 10:58 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO3242
PP RUEHDBU
DE RUEHTA #0563/01 0611058
ZNY CCCCC ZZH
P 021058Z MAR 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 8625
INFO RUCNCIS/CIS COLLECTIVE 0045
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000563 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
 
E.O. 12958: DECL: 03/01/2017 
TAGS: ENRG EPET KZ AJ
SUBJECT: KAZAKHSTAN: KMG EXECUTIVE DISCUSSES KCTS PROCESS 
 
REF: A. 06 ALMATY 1835 
 
     B. 06 ALMATY 1934 
 
Classified By: Ambassador John Ordway; reasons 1.5(b) and (d). 
 
1. (C) Summary: Arman Darbayev, KazMunaiGaz (KMG) Executive 
Director of Transportation Infrastructure, discussed KMG's 
vision of the Kazakhstan Caspian Transportation System (KCTS) 
process with Energy Officer on March 1.  Darbayev (strictly 
protect) acknowledged that the Kazakhstanis intend to use the 
fact the IGA has not yet been ratified in Kazakhstan as 
leverage in early negotiations with the Azeris -- 
negotiations which, given the minimalist nature of the IGA 
and apparent differences of opinion on key issues (Darbayev 
focused on the marine transportation concept), were likely to 
be difficult.  Darbayev explained that KMG hoped to get GOK 
approval on a general set of negotiating principles in the 
coming weeks, then launch preliminary talks with the Azeris; 
should the Azeris support a set of "minimal guarantees" 
(which had been written into the IGA at one time, but removed 
to facilitate agreement), then full HGA negotiations could be 
launched with both governments.  Darbayev indicated that KMG 
viewed the two KCTS segments -- the Eskene-Kuryk pipeline and 
the "Trans-Caspian Project" -- as requiring separate 
negotiating processes.  The pipeline, he said, would not need 
to be covered by an HGA.  The GOK was prodding KMG to move 
quickly on KCTS, he said; at the same time, many in power 
believed that the GOK had erred in rushing to sign a 
stripped-down IGA in Spring 2006, and were determined not to 
give anything away in future negotiations.  End summary. 
 
IGA Ratification as Negotiating Leverage 
---------------------------------------- 
 
2. (C) Darbayev, who as Kairgeldy Kabyldin's Deputy, is an 
active participant in the KCTS negotiations, acknowledged in 
confidence that KMG, at least, viewed the fact that 
Kazakhstan's Parliament had failed to date to ratify the IGA 
as useful leverage in negotiations with the Azeris.  Darbayev 
told Energy Officer that he had heard, indirectly, that 
during his recent visit to Kazakhstan, the Azeri Prime 
Minister had raised the issue of IGA ratification with Prime 
Minister Masimov.  While Darbayev wasn't sure what Masimov's 
had replied, he was "worried that Masimov had not been 
properly briefed" about the strategic value of leaving the 
IGA unratified for the time being. 
 
KMG's Vision of Next Steps 
-------------------------- 
 
3. (C) Darbayev explained that the Kazakhstanis needed all 
the leverage they could get in what he predicted would be 
difficult negotiations with the Azeris.  Darbayev described 
how KMG envisioned the negotiating process:  his office was 
currently drafting a "high-level" set of negotiation 
principles for approval by the GOK.  Once the GOK approved 
the principles, preliminary discussions with the Azeris would 
be launched.  (Darbayev suggested this could occur as soon as 
late March.)  Once the Azeris accepted in principle the 
"basic guarantees" that had been excluded from the IGA 
following Vice-Minister Kiinov's replacement of Kabyldin as 
lead Kazakhstani negotiator in May 2006 (Ref A), then HGA 
negotiations with both governments could begin. 
 
Major Differences on Shipping? 
------------------------------ 
 
4. (C) Darbayev identified four points to be addressed in 
negotiations with the Azeris:  (a) the "basic guarantees" had 
to either be included in the HGA, or adopted by means of a 
Government of Azerbaijan (GOAZ) decree;  (b) the GOAZ had to 
create a special tax regime for the project; (c) basic 
investor rights would have to be elaborated; and (d) the two 
sides would have to agree on a marine transportation concept. 
Darbayev noted that the last issue was likely to be 
problematic.  The GOK and investors envisioned joint 
ownership of the terminals on both sides of the Caspian, he 
said, but SOCAR President Abdullayev had recently lauded the 
planned construction of an entirely new, Azeri-owned terminal 
to receive Kazakhstani oil -- suggesting the Azeris had 
different ideas in mind.  Further, Darbayev said, the 
Kazakhstanis planned to use 40,000 - 60,000 DWT vessels to 
transport oil; the Azeris, confident that their existing, 
10-15,000 DWT fleet would dominate if tanker size were 
restricted, were likely to object. 
 
Two KCTS Segments, Two Negotiation Processes 
 
ASTANA 00000563  002 OF 002 
 
 
-------------------------------------------- 
 
5. (C) Darbayev told Energy Officer that the two components 
of the KCTS Project -- the Eskene-Kuryk pipeline and the 
"Trans-Caspian Project" (comprising a terminal at Kuryk, the 
tankers, an unloading terminal in Azerbaijan, and onward 
pipeline interconnections) -- called for different 
negotiating processes.  For example, he said, the pipeline 
project  would not have to be covered under an HGA; 
"regulation under national legislation" would suffice. 
 
No Specific Deadline f
or KCTS Completion 
---------------------------------------- 
 
6. (C) Darbayev explained that, while including 
TengizChevrOil (TCO) in the KCTS process had added a sense of 
urgency, no specific completion date -- Kashagan "first oil" 
or other -- was driving the process.  At best, he estimated, 
the negotiations could be finished and construction completed 
in 2011.  (Note: ConocoPhillips' Country Manager Nick Olds 
recently confirmed to Energy Officer that Kashagan producers 
are counting on the fact that first Kashagan oil, in fact, 
will be shipped to market by some other means, with the 
Eskene-Kuryk pipeline coming on-line afterwards.  End note.) 
The GOK was urging KMG to move the KCTS process forward 
quickly, Darbayev said.  At the same time, he added, 
"Nazarbayev and other officials recognize that we made a 
mistake in rushing to sign the IGA, and we're determined not 
to make the same mistake again." 
 
7. (C) Comment: As Kabyldin's loyal deputy, Darbayev is 
likely still smarting from Kabyldin's dismissal as lead IGA 
negotiator last Spring, and the subsequent signature of a 
revised IGA under Kiinov's leadership.  For that reason, his 
comments about Nazarbayev's -- and the GOK's -- overall 
assessment of the IGA probably cannot be taken as 
authoritative.  End comment. 
ORDWAY

Wikileaks

07ASTANA562, KAZAKHSTAN: CONOCOPHILLIPS’ “N BLOCK” BID ON HOLD

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Reference ID Created Released Classification Origin
07ASTANA562 2007-03-02 10:53 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO3231
PP RUEHDBU
DE RUEHTA #0562/01 0611053
ZNY CCCCC ZZH
P 021053Z MAR 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 8623
INFO RUCNCIS/CIS COLLECTIVE 0043
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000562 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
COMMERCE FOR ADVOCACY CENTER:BLOPP 
 
E.O. 12958: DECL: 03/01/2017 
TAGS: ENRG EPET KZ
SUBJECT: KAZAKHSTAN: CONOCOPHILLIPS' "N BLOCK" BID ON HOLD 
 
REF: 06 ASTANA 738 
 
Classified By: Ambassador John Ordway; Reasons 1.5 (b) and (d). 
 
1. (C) Summary:  Don Wallette, ConocoPhillips' (CP) Russia 
and Caspian Region President, told the Ambassador on February 
28 that the GOK had decided to postpone, indefinitely, its 
selection of foreign partners to participate in the 
development of the offshore "N" block, in order to 
re-evaluate the reservoir in light of indications that the 
block's reserves are larger than previously assumed.  This 
unexpected news follows high-level GOK assurances in 
December, given both to CP and the Ambassador, that CP would 
be given an initial 10% stake in the project, with the 
details of CP's partnership with Shell and KazMunaiGaz (KMG) 
to be worked out in early 2007.  According to Wallette, 
CP's main rival for the project, Shell, has received the same 
bad news, leaving both companies in a state of uncertainty. 
 
2. (C) Summary (continued):  Discussing Kashagan, Wallette 
noted that ENI's recent announcement of a late 2010 date for 
"first Kashagan oil" was still "somewhat optimistic"; a 
late-summer 2007 engineering review might bring more 
certainty.  Wallette explained that the North Caspian PSA 
partners were increasingly interested in bringing Kashagan's 
sister field, Kalamkas, online in the short term, even before 
first Kashagan production.  ENI was receptive to the idea of 
another consortium partner operating Kalamkas, Wallette 
explained, and Shell had approached CP with a joint 
operatorship proposal.  However, Wallette concluded, given 
CP's small stake (9%) in the consortium, and Kalamkas's 
relative insignificance in CP's global portfolio, the company 
was unwilling to make the personnel commitments required of 
an operator.  End summary. 
 
N Block: Back to Uncertainty 
---------------------------- 
 
3. (C) Wallette informed the Ambassador on February 28 that 
CP had recently been notified that, due to KMG's desire to 
re-evaluate the "N Block" reservoir, further negotiations on 
CP and Shell's participation in the project would be 
postponed, "perhaps until May or June."  (When CP first 
learned of the postponement, KMG sources told CP Country 
Manager Nick Olds that Kashagan delays had triggered a broad 
GOK review of its offshore Caspian development plans; later, 
however, CP received a more authoritative explanation: that 
the GOK had reason to believe that "N" Block reserves were 
larger than previously thought, and wished to re-evaluate the 
available seismic data.) Olds told the Ambassador that, as 
far as CP knew, KMG had not acquired any new data; rather, it 
would re-interpret existing data.  (Earlier in the week Olds 
speculated to Energy Officer that perhaps KMG had acquired 
new data from Chevron, which has been undertaking seismic 
data collection over a broad portion of the Caspian, 
overlapping "N" -- but by February 28 Olds seemed to have 
dismissed the possibility that Chevron's study had provoked 
the decision.) 
 
4. (C) Wallette termed the GOK stance "an abrupt change," 
recalling that CP had received clear notice in December, both 
from Energy Minister Izmukhambetov and Presidential 
son-in-law Timur Kulibayev, that CP would receive an initial 
10% share of the project, and partner with both Shell and 
KMG; further, CP had been told that detailed negotiations 
among the three partners, leading to signature of a "Heads of 
Agreement" (HOA), would commence in January.  While Mulva had 
not accepted that CP would receive only 10%, arguing instead 
for a 20% (CP), 20% (Shell), 60% (KMG) initial split, the 
company had weathered the delays caused by the January change 
of government fully expecting to reach closure on a deal soon 
after.  (Note: On December 15, both Izmukhambetov and Prime 
Minister Akhmetov told the Ambassador, as well, that CP would 
get an initial 10% of "N." The same day, President Nazarbayev 
also informed the Ambassador that CP would be included. End 
note.) 
 
5. (C) Wallette noted that "N" block rival -- and potential 
partner -- Shell had also been caught off-guard by the 
announcement; Shell's Country Manager, Martin Ferstl, had 
called Olds in an attempt to understand the GOK's decision. 
(Olds reported that a KMG source had told him that, upon 
hearing the news, Prime Minister Blair had called Nazarbayev, 
only to be told the same thing -- that KMG was re-evaluating 
the field.) 
 
 
ASTANA 00000562  002 OF 002 
 
 
6. (C) Olds told the Ambassador that KMG sources had informed 
him that the GOK's "N" block strategy was dependent on the 
outcome of the reevaluation.  If the reserve estimates grew 
substantially, the GOK would either launch an entirely new 
tender process, split the block in two and run separate 
tenders -- or, conceivably, "stay the course" with Shell and 
CP.  Ambassador Ordway raised the possibility that this 
latest news was (another) GOK tactic designed to squeeze the 
maximum amount of money out of Shell and CP before going &#x
000A;forward.  Did it not make sense, he asked, for Shell and CP 
to join forces, both to consolidate their position and to 
eliminate the possibility of being played off against one 
another?  Wallette and Olds agreed that it was time to 
re-evaluate CP's strategy, and that approaching Shell with 
such an offer was certainly worth another look. 
 
Kashagan:  Kalamkas Oil First? 
------------------------------ 
 
7. (C) Turning to Kashagan, Wallette suggested that operator 
ENI's recent announcement that first oil would be delayed 
until 2010 "meant December 31, 2010," and, even at that, was 
still "somewhat optimistic."  The consortium would likely 
know more by the end of the summer, he said, after further 
engineering work was done.  Wallette added that the 
consortium would have to provide the GOK with a revised 
development plan and budget during the summer -- which would 
likely provoke a "tough" GOK reaction. 
 
8. (C) Wallette told the Ambassador that a recent appraisal 
well at Kashagan's sister field, Kalamkas, had been "very 
successful."  Furthermore, he said, unlike Kashagan, Kalamkas 
gas was "sweet," making overall field development "no harder 
than routine North Sea work."  As a consequence, the 
consortium partners were seriously considering bringing 
Kalamkas oil to market early, ahead of Kashagan first oil. 
ENI, Wallette added, was open to the idea of appointing a 
sub-contractor as Kalamkas operator, so long as the field 
remained under the Kashagan Production Sharing Agreement, and 
so long as the operator adhered to the current development 
concept -- i.e., so long as Kalamkas oil was produced early, 
in order to help compensate for Kashagan delays.  (Wallette 
pointed out that accelerating the date of Kalamkas production 
was not necessarily the best economic decision.) 
 
9. (C) Shell had approached CP with a proposal to jointly 
operate Kalamkas, Wallette said.  Given their respective 
shares in the AGIP KCO consortium, and Kalamkas's relatively 
small size, neither company wanted to operate alone.  In 
fact, Wallette added, CP had turned down Shell's offer, 
unwilling to commit large numbers of its skilled personnel to 
operate what was, in global terms, a relatively insignificant 
project.  The CP executives reported that ExxonMobil was also 
rumored to be a candidate for the Kalamkas operatorship. 
 
10. (C) Comment.  The GOK's decision to delay a "N" Block 
deal is, of course, disappointing.  It is also mysterious -- 
is there, in fact, new seismic data?  Is this move a GOK ploy 
to squeeze more money out of CP and Shell, or perhaps to 
introduce new partner companies into the deal?   However, it 
is too early to assume that the GOK's promise of 10% CP 
participation has been broken.  While CP may find itself 
forced to raise its offer in the face of new reserve 
estimates, or even match another company's better offer in 
order to secure its promised 10%, we continue to take some 
comfort, at least, in the high-level promises made in 
mid-December.  End comment. 
ORDWAY

Wikileaks

07ASTANA116, KAZAKHSTAN’S PETROCHEMICAL AMBITIONS:

WikiLeaks Link

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If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol).Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #07ASTANA116.
Reference ID Created Released Classification Origin
07ASTANA116 2007-01-12 12:04 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO6773
PP RUEHDBU
DE RUEHTA #0116/01 0121204
ZNY CCCCC ZZH
P 121204Z JAN 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 8166
INFO RUCNCIS/CIS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 04 ASTANA 000116 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
 
E.O. 12958: DECL: 01/11/2016 
TAGS: ENRG EPET KZ PGOV PREL
SUBJECT: KAZAKHSTAN'S PETROCHEMICAL AMBITIONS: 
FORWARD-THINKING OR FOLLY? 
 
REF: A. 06 ASTANA 737 
 
     B. 06 ASTANA 738 
 
Classified By: Charge d'Affaires Kevin Milas; reasons 1.4 (b) and (d). 
 
1. (C) Summary:  The Government of Kazakhstan (GOK) is 
aggressively encouraging foreign investment in a domestic 
petrochemical industry as part of its strategy to diversify 
the economy and to "climb the value chain" of hydrocarbon 
production.  The GOK has authorized a predictable set of tax 
benefits for petrochemical investors, but the largest 
incentive to invest may be the 2005 law governing offshore 
oil contracts, which makes explicit the GOK's intent to favor 
exploration and production bids from companies which commit 
to investing in the petrochemical industry.  Western oil 
company executives are uniformly skeptical of the economics 
of petrochemicals in Kazakhstan, pointing out that the 
country is disadvantaged, especially in comparison with the 
Middle East, in terms of feedstock availability, distance to 
market, and supporting infrastructure.  Numerous potential 
petrochemical projects have been discussed in the media over 
the last year, but the one which appears to be furthest along 
-- a plan to build a $4 billion complex in Atyrau using 
ethane from the Tengiz field -- does, indeed, appear to be 
"uneconomic" and dependent on high-level political will to 
remain on-track.  The 2005 law, along with the growing 
perception that building a petrochemical plant would "please 
the President," creates an interesting dilemma for Western 
oil companies which would prefer to focus on producing and 
transporting crude oil.  End summary. 
 
Outlining the GOK's Vision 
-------------------------- 
 
2. (C) The development of a petrochemistry industry is, upon 
first analysis, a logical extension of Kazakhstan's oil 
extraction-based economy, and evidence suggests that the GOK 
has entertained the thought for years.  ConocoPhillips (CP) 
Vice President Bill Berry recently told the Ambassador that 
the GOK had pressured CP to invest in a petrochemical 
facility in 1997, during discussions surrounding CP's entry 
into the super-giant Kashagan project.  The petrochemical 
initiative appears to have first gained official status in 
2003, with the publication of the Republic's "Industrial and 
Innovation Development Strategy for 2003-2015." This document 
singles out petrochemicals as a sector in which Kazakhstan 
has a likely competitive advantage.  (Note: This document, 
which focuses on the development of competitive, 
export-oriented non-raw materials production, is often seen 
as the starting point for Kazakhstan's subsequent "cluster 
theory" approach to economic diversification.  End note.) 
The initiative gained further footing with the 2004 
publication of a six-year plan for developing a Kazakhstani 
petrochemical sector.  The clearest sign that this has become 
a GOK priority, however, are 2005 revisions to the offshore 
oil production law (see para. 7) which made explicit the 
GOK's intent to favor companies in the bidding process which 
pledged to invest in petrochemicals.  President Nazarbayev 
touted the petrochemical industry in his 2004 and 2006 annual 
addresses, but has been relatively low-key in his public 
approach to the issue.  This contrasts, we are told, to his 
private approach in talking to international oil companies -- 
on November 19 CP Country Manager Nick Olds told the 
Ambassador that Nazarbayev had talked to "all the oil 
companies" about investing in petrochemicals. 
 
3. (C) While Nazarbayev has not made the connection explicit, 
many observers believe the petrochemical initiative has also 
gained momentum from the President's drive to make Kazakhstan 
one of the fifty "most competitive" nations, and the 
concurrent emphasis on diversifying the economy.  (Comment: 
While petrochemical production would clearly add value to 
Kazakhstan's gas resources, it would, as a 
technology-intensive industry, add relatively few jobs.  End 
comment.)  Shell's Country Chairman, Martin Ferstl (whose 
company advised the GOK on a petrochemical strategy in 2005) 
told Energy Officer recently that he believed Nazarbayev's 
motivations for promoting the industry were driven in part by 
fears that, once Kazakhstan joined the WTO, the country would 
be flooded with Chinese products.  Kazakhstan hoped to export 
petrochemicals to China, Ferstl concluded, in order to help 
balance trade flows. 
 
4. (C) In 2005 the state-owned Center for Marketing and 
Analytical Research (CMAR) undertook a feasibility study of 
the industry, contracting with Nexant to produce a detailed 
 
ASTANA 00000116  002 OF 004 
 
 
"Petrochemical Masterplan," the fundamental conclusions of 
which -- that an ethane-based petrochemical complex based in 
Atyrau would have an expected internal rate of return (IRR) 
of 13-16% -- were presented during a November 2005 
petrochemical conference in Astana.  (Note: There was 
widespread skepticism of th
is IRR figure. Two oil company 
executives whispered to Energy Officer on the margins of the 
conference that Nexant had originally returned a much lower 
IRR -- in the single digits -- only to be told to go back and 
change the study's assumptions.  End note.) 
 
Existing Facilities / Planned Future Facilities 
--------------------------------------------- -- 
 
5. (U) In the Soviet era, Kazakhstan's petrochemical 
industries (a polyethylene plant in Aktau, a polypropylene 
plant in Atyrau, a tire-manufacturing plant in Shymkent, and 
a complex of rubber plants in Karaganda) functioned as part 
of a larger Soviet production chain, importing raw materials 
from Russia and distributing the resulting value-added 
products throughout the USSR.  While several of the rubber 
plants have survived since independence by exploiting the 
same interconnections with the Russian market, the Aktau and 
Atyrau plants have struggled.  Both had shut down prior to 
being purchased, in 2004, by "Atoll" -- a Kazakhstani 
joint-venture which, in 2006, joined with Dutch-based Basell 
to become "Kazakhstan Petrochemical Industries" (KPI).  Atoll 
re-tooled the Aktau plant to begin polystyrene production in 
September 2005, using feedstock from Russia and selling the 
resulting plastics inside Kazakhstan (12%), to Russia and the 
CIS (30-40%), and to China (48-58%). 
 
6. (C) KPI has not restored polypropylene production at the 
Atyrau facility; this site is now one of several being 
considered as the location for KPI's planned ethane complex 
in Atyrau (par. 10).  The KPI project is merely one of 
numerous new potential projects which have been discussed 
publicly in the past year.  At the November 2005 
petrochemical conference, then-Energy minister Vladimir 
Shkolnik singled out a $3.6 billion KMG / Lukoil gas chemical 
complex planned in Kazakhstan, near the North Caspian border 
with Russia. (Note: This project now seems less likely, with 
Russia reportedly favoring a Russian landing for the offshore 
gas.  End note.)  KMG and Marubeni, a Japanese company, are 
reportedly developing a feasibility study to explore the 
possibility of producing benzene at the Atyrau refinery, for 
use as a feedstock for polystyrene production at the Aktau 
plant. "GS Caltex," a South Korean company, has reportedly 
launched a feasibility study (with KMG) for construction of a 
$1.5 - $3 billion plastics plant.  On December 15, Iranian 
Foreign Minister Mottaki was quoted in the press as 
indicating Iran's interest in building a petrochemical 
complex in Atyrau.  These announced deals and discussions may 
only scratch the surface of active interest: Michael 
Sturdivant, an Almaty-based Deloitte tax advisor, told Energy 
Officer on November 28 that "four or five" companies had 
recently sought Deloitte's advice on possible petrochemical 
investments in Kazakhstan. 
 
Legal and Financial Promotions 
------------------------------ 
 
7. (C) Kazakhstan's 2005 law governing offshore oil 
operations (informally, the "Production Sharing Agreement" 
law) formalized the GOK's intent to favor international oil 
companies which invest in petrochemical facilities in 
Kazakhstan.  The law states that, in assigning offshore 
production and exploration rights, the State will favor 
proposals which further the development of "high technology" 
-- of which "petrochemistry" is listed as the highest 
priority.  Prime Minister Akhmetov articulated this 
connection clearly in his keynote speech at the 2005 
petrochemical conference, stating "we will prioritize 
companies who invest in petrochemicals when signing 
exploration and production contracts." 
 
8. (C)  ConocoPhillips' (CP) bid to secure Kazakhstan's 
offshore "N" block (Ref A) provides one example of how the 
GOK is implementing this law.  CP related to Post that, 
during CP CEO Jim Mulva's meetings in Astana in May 2006, 
Prime Minister Akhmetov and other officials told Mulva that 
the surest way to win a share of the "N" block was to commit 
to partner with KMG in building a petrochemical facility 
which would utilize "N" block gas.  Akhmetov answered Mulva's 
skepticism about the commercial feasibility of such a project 
by referring to Nexant's finding that an ethane cracker 
 
ASTANA 00000116  003 OF 004 
 
 
complex had an expected IRR of 13-16%. 
 
9. (SBU) The GOK has also created tax and other financial 
incentives for petrochemical investment. The 2006 Tax Code 
(Article 119-1) provides a five-year exemption on corporate 
income tax for petrochemical projects established from 
2004-2007 and meeting minimal investment thresholds. (Note: A 
local accountant -- and skeptic of the petrochemical sector 
initiative -- minimized the significance of this article as 
an incentive to investment, pointing out that an exemption on 
corporate income tax has value only if the company has 
taxable profits in the first place.  End note.) 
 
10. (SBU) Finally, the GOK has launched a feasibility study 
for the creation of a "National Industrial Petrochemical 
Technopark" in Atyrau, where investors will enjoy the 
benefits of operating in a "special economic zone," including 
exemptions from land and property tax, VAT exemptions on 
service turnover, and exemptions from customs duties on 
imported goods.  (Note: The "technopark" is a key element in 
Kazakhstan's "industrial innovation" strategy -- the 2003 
initiative at diversifying the economy which gave rise to 
Kazakhstan's "cluster" approach to diversification.)  While 
the technopark plans feature prominently in the Atyrau 
oblast's short-term economic development vision, no 
institutions have yet been built. 
 
Atyrau Petrochemical Facility 
----------------------------- 
 
11. (C)  The petrochemical project which has received the 
most press, and appears to be furthest along in development, 
is KPI's planned $4 billion ethane-based cracker, an 
associated LPG-based Propane Dehydrogenation Plant, and 
downstream polyethylene and polypropylene facilities, based 
in Atyrau. The project's first stage envisions building a 
cracker utilizing 3 billion cubic meters (bcm) of gas 
annually from the nearby Tengiz oil field, and a second 
complex, further in the future (2013-18), based on gas 
volumes from the Kashagan field. 
 
12. (C) The project still appears to face considerable 
hurdles despite much forward-leaning press and clear 
government support. The First Deputy Akim of Atyrau told the 
DCM on November 28 that the oblast based "many hopes on 
petrochemicals," and listed development of a petrochemical 
industry as the oblast's second economic priority, trailing 
only further development of oil and gas production. 
Nevertheless, TengizChevrOil (TCO) General Manager Todd Levy 
recently told DCM (Ref B) that negotiations between KPI and 
TCO for Tengiz gas supplies were proceeding only because 
Nazarbayev had asked Chevron Chairman David O'Reilly to 
support th
e project.  TCO had agreed to supply KPI with 
below-market gas, Levy said, but even so the project appeared 
to be "uneconomic," and the deal would likely fail without 
additional political intervention. Access Industries (parent 
company of KPI participant Basell) Vice President Paul 
Rodzianko seemed to have reached the same conclusion when, on 
December 7, he asked Energy Officer how the Embassy might 
react to a request from Access to "put some pressure" on TCO 
to conclude a gas deal.  "The project has to happen," 
Rodzianko explained, "because it's important to Nazarbayev." 
 
13. (C) Although KPI recently announced signature of an MOU 
concerning "mutual intent to proceed with negotiations over 
gas supplies," with Kashagan operator AGIP KCO, the 
consortium is not factoring gas supplies for a petrochemical 
plant into their project development plans.  Ferstl told 
Energy Officer on December 8 that the GOK had recently 
"seemed to drop" the idea that AGIP KCO should allocate gas 
for a petrochemical plant; for this and other reasons the 
consortium had recently adopted a "full re-injection plan" 
for Kashagan gas.  AGIP KCO's Astana Office Manager, Luka 
Rogoz, confirmed this on December 6, telling Energy Officer 
that "all" of Kashagan's gas would be re-injected, beginning 
six months after first commercial oil production.  As a 
consequence, he continued, Kashagan engineering and 
construction was proceeding on the basis of 100% 
re-injection.  If the GOK came back to the consortium with a 
request to support the petrochemical industry, he concluded, 
"I don't have the faintest idea how we would accommodate the 
request." 
 
Private Sector Skepticism 
------------------------- 
 
 
ASTANA 00000116  004 OF 004 
 
 
14. (C) Among local oil company executives, skepticism of the 
GOK's petrochemical ambitions run high. The skeptics 
articulate three primary disadvantages faced by Kazakhstan: 
lack of available feedstock, distance from market, and 
inadequate supporting infrastructure.  To outline the 
argument concerning feedstock: seventy percent of 
Kazakhstan's known gas resides in three fields: Karachaganak, 
Kashagan, and Tengiz.  Karachaganak is reportedly near to 
signing a long-term deal to supply gas to the Orenburg gas 
refinery in Russia which would commit the field's gas 
supplies well into the next decade.  Kashagan partners are 
pursuing full re-injection.  While TCO has lower re-injection 
goals for Tengiz, and the field's high ethane content makes 
it attractive for use in petrochemical production, two 
independent industry studies (by Shell and ExxonMobil) have 
concluded that Tengiz does not have sufficient gas to drive a 
cost-competitive cracker.  Intertwined with the idea of gas 
"availability," of course, is the issue of gas economics: how 
can Kazakhstan's gas -- often highly-sulfurous, and thus 
expensive to process; and associated with oil, and thus 
valuable for raising reservoir pressure for high-value oil -- 
compete with gas from the Middle East which (a) is often 
found separate from oil; (b) is often "stranded" (or isolated 
from market), and thus cannot be monetized on its own; and 
(c) often receives governmental support which lowers the 
price below export parity? 
 
15. (C) In terms of infrastructure, the ExxonMobil study 
suggests that the "green field" costs for petrochemical 
development in Kazakhstan are approximately twice that of 
"brown field" costs on the U.S. Gulf Coast -- a difference 
which reflects both significantly higher constructions costs 
in cold and isolated Kazakhstan, and the relative lack of 
surrounding road, port, rail, and electrical infrastructure. 
This lack of infrastructure exacerbates Kazakhstan's third 
major disadvantage, that of geography: thousands of miles 
from either the European or Chinese markets, the country 
suffers a logistical disadvantage in relation to existing or 
potential competitors, especially in the Middle East.  These 
disadvantages add up, in ExxonMobil's detailed study, at 
least, to single-digit returns on investment in 
petrochemical facilities in Kazakhstan.  While the study 
suggests that the GOK can do much to reduce Kazakhstan's 
disadvantages -- primarily by investing in infrastructure -- 
the necessary changes are years, if not decades, away. 
 
16. (C) Comment:  There is a clear contradiction between the 
oil companies' calculations that a petrochemical plant in 
Kazakhstan is not economic, and the GOK's evident will that 
one (or more) be built.  The GOK can, to some extent, improve 
project economics even further with tax cuts and, in the long 
term, infrastructure improvements. The 2005 PSA law, of 
course, broadens the relevant economic calculation, 
essentially inviting companies to "write off" a low- (or no-) 
profit petrochemical plant in return for access to a 
potentially lucrative offshore oil field.  And finally, 
pleasing President Nazarbayev carries benefits that cannot be 
captured by purely economic models.  These reasons appear to 
explain the private sector interest expressed so far, and 
will likely, sooner or later, lead to a company taking the 
petrochemical plunge, if adequate supplies of gas can be 
secured.  These investments will likely occur in partnership 
with KMG -- which, as a state-owned company, may have the 
mandate and leeway to undertake "strategic" projects with low 
expected rates of return. End comment. 
MILAS

Wikileaks

06ASTANA824, KAZAKHSTAN: PREPARING FOR FUTURE ROUND OF OFFSHORE

WikiLeaks Link

To understand the justification used for the classification of each cable, please use this WikiSource article as reference.
Discussing cables
If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol).Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #06ASTANA824.
Reference ID Created Released Classification Origin
06ASTANA824 2006-12-12 12:04 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO2719
PP RUEHDBU
DE RUEHTA #0824/01 3461204
ZNY CCCCC ZZH
P 121204Z DEC 06
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 7925
INFO RUCNCIS/CIS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 03 ASTANA 000824 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
 
E.O. 12958: DECL: 12/11/2016 
TAGS: ENRG EPET KZ
SUBJECT: KAZAKHSTAN: PREPARING FOR FUTURE ROUND OF OFFSHORE 
OIL TENDERS? 
 
REF: ASTANA 738 
 
Classified By: Pol-Econ Chief Deborah Mennuti; reasons 
1.4 (b) and (d). 
 
1. (C) Summary:  In early 2006, the Government of Kazakhstan 
granted a small geophysical company, Caspian Veritas LLP, 
exclusive rights to acquire seismic data over the entire 
"open" (unassigned) acreage of the Kazakhstani sector of the 
Caspian Sea.  The company -- and at least one major 
prospective client -- believe this data will be used to 
launch Kazakhstan's first-ever round of "open" tenders for 
offshore fields, perhaps as early as late 2007.  Moving to an 
open tender system would be consistent with the 2005 
Production Sharing Agreement Law, which grants priority to an 
open tender system. In the current system, individual 
companies are invited to negotiate their participation in a 
project with KazMunaiGaz (KMG), the national oil and gas 
company.  Energy Minister Izmukhambetov, however, has spoken 
publicly of delaying new tenders indefinitely, focusing the 
GOK's resources instead on developing existing fields and 
finalizing contracts already under negotiation.  A Shell 
executive, experienced in competing -- and winning -- in the 
current system, believes the "direct negotiation" approach is 
well-suited to Kazakhstan and unlikely to change in the near 
future.  End summary. 
 
Kazakhstani Law -- and Current Practice 
--------------------------------------- 
 
2. (C) Kazakhstan's July 2005 Production Sharing Agreement 
(PSA) Law was the first legislation to systematically outline 
a process for assigning offshore rights.  (Of course, PSAs 
had been signed prior to passage of the law, at Kashagan, 
Karachaganak, Tyub-Karagan, and Kurmangazy.)  The law 
specifies three ways in which offshore blocks can be 
assigned.  The "primary" method is by open or closed tender 
-- though, to date, none have been held.  The PSA Law also 
grants the GOK the right to assign blocks, without tender, if 
provided for by treaty or to "fulfill other obligations" of 
the State.  (This process was used in creating the Kurmangazy 
PSA.  Kurmangazy straddles the Kazakhstani/Russian Caspian 
boundary line, and thus presented treaty implications.) 
Finally, the PSA Law allows the "national company" 
(KazMunaiGaz) to obtain fields by "direct negotiations" with 
MEMR, and then subsequently to seek a "strategic partner" 
(without tender) to participate in field development.  This 
process, in fact, has been pursued in all of the offshore 
projects currently being negotiated with foreign oil 
companies. 
 
3. (C) The passage of the PSA Law spurred much speculation 
that, with the fundamental tender rules outlined and 
codified, the GOK would soon prepare an open tender for an 
offshore field. On several occasions since the passage of the 
law, however, Energy Minister Izmukhambetov has announced the 
GOK's intent to indefinitely postpone the tender process, in 
favor of concentrating on concluding ongoing negotiations and 
developing existing projects -- notably, Kashagan -- in which 
KMG is already a partner.  Many oil executives here subscribe 
to the theory, implicit in Izmukhambetov's statements, that 
KMG lacks the institutional capacity to manage more offshore 
projects, and/or the finances to uphold its share of further 
offshore projects. 
 
Shell Articulates Advantages of Direct Negotiations 
--------------------------------------------- ------ 
 
4. (C) With a share in Kashagan and offshore Zhemchuzhnaya, 
and an apparent lock on participation in the "N Block" 
project (reftel), Shell has arguably had more recent success 
in securing offshore Kazakhstani prospects than any other 
company.  On December 8, Martin Ferstl, Shell's Country 
Chairman, shared his impressions of the process with Econoff. 
 Ferstl suggested that the GOK preferred having companies 
negotiate directly with KMG, rather than conducting open 
tenders, because the former process allowed KMG to negotiate 
with several companies at once.  This benefited KMG early in 
the process, he said, because it allowed KMG to see each 
company's seismic data set -- and thus compensate for the 
fact that the GOK often did not have independent access to 
the best data in existence.  After seeing each company's data 
set, Ferstl continued, KMG would acquire the technical 
knowledge of the block in question well enough to conduct 
intelligent negotiations over the financial terms for access 
to the process.  Finally, he said, KMG benefited from having 
 
ASTANA 00000824  002 OF 003 
 
 
two or more project finalists bid against one another, 
because KMG was more likely to receive a fair bid that way 
than if it had to evaluate a series of tender bids against 
the technical baseline of a project that it did not 
understand very well. 
 
5. (C) To succeed in the current system, Ferstl continued, a 
company had to establish good personal relationships with 
Kazakhstani energy insiders.  Over time, he explained, the 
Kazakhstani offshore had come to be divided into separate 
"fiefdoms" associated informall
y with the one (or more) 
companies which had demonstrated persistent interest.  These 
companies tended to be the ones invited into negotiations 
with KMG.  This relationship-oriented process, Ferstl argued, 
fit Kazakhstan's culture better than the "objective," 
bureaucratic approach of a formal tender -- one reason, he 
said, why the GOK was unlikely to adopt the open tender 
process in the near future. 
 
6. (C) At the same time, Ferstl described the Kazakhstani 
system of direct negotiation with KMG as "immensely 
frustrating." Shell had spent four-and-a-half years 
negotiating access to the "N Block," he cited by way of 
example, while in most countries "a tender process would be 
concluded in six months."  Part of the reason for the long 
process, he said, was that the GOK was in no hurry to develop 
the offshore Caspian.  Ferstl cited the shortage of 
institutional resources (para. 3) as one example, along with 
the idea that the GOK's cash flow from current projects meets 
the GOK's development goals. 
 
Seismic Data Acquisition Project 
-------------------------------- 
 
7. (C) Despite the GOK's established preference to assign 
blocks via direct negotiation, there are those who believe an 
open tender process is on the horizon.  In early 2006 the 
Ministry of Energy and Mineral Resources (MEMR) concluded an 
agreement with Veritas Caspian LLP (a 50/50 joint venture 
between Salt Lake City-based Caspian Services, Inc., and 
Veritas DCG of Houston) giving Veritas Caspian an exclusive 
right to obtain seismic data over the entire open 
(unassigned) acreage of the Kazakhstani sector of the 
Caspian.  Veritas Caspian also secured the right to market 
the data for ten years on behalf of the GOK, which it will do 
by creating a seismic data database available for purchase by 
interested oil companies.  Veritas Caspian recently completed 
its first season of work, shooting approximately 660 
kilometers of 2D seismic data in the "Chagala" area of the 
Caspian -- just South of the super-giant Kashagan field. 
Veritas Caspian has largely funded its seismic acquisition 
project by offering "subscriptions" to oil companies.  In 
return for an upfront, one-time payment, subscribers are 
allowed input into which sectors of the sea Veritas Caspian 
will shoot first and most comprehensively, along with 
preferential access to the finished data, which will 
eventually be distributed to any interested buyer. 
 
8. (C/NF) Terrance Powell, Caspian Services' Vice President 
for Investor Relations, told Econoff that oil companies had 
eagerly paid to become "subscribers" to the service, and at 
least one oil major had "screamed bloody murder" after being 
told they had missed the deadline to participate.  Peter 
Claypoole, ExxonMobil's Manager for New Business Development, 
told Econoff that his company was an eager "subscriber" to 
the process, and expected that the seismic data would be used 
to launch future rounds of open tenders for offshore blocks. 
ExxonMobil, he added, was extremely interested in the 
"Primorsk" block (estimated 2 billion barrels) of the Chagala 
area, and was eagerly awaiting the completed data package and 
an anticipated tender.  Powell told Econoff that his company 
had been told that the seismic data would be used as the 
basis for an "open tender" round, perhaps as early as 
year-end 2007, but acknowledged that MEMR had sent 
conflicting signals about its intent. 
 
9. (C) Comment:  While the seismic data database being built 
could, presumably, give KMG the technical expertise it 
currently lacks to conduct an open tender, it would not 
appear to necessitate a change in the current process for 
assigning offshore blocks.  If, as Ferstl indicated, the GOK 
is comfortable linking the assignments process to various 
"soft" considerations, including interpersonal relationships 
and, presumably, Kazakhstan's broader geopolitical concerns, 
then a continuation of the status quo might be the most 
likely outcome.  End comment. 
 
ASTANA 00000824  003 OF 003 
 
 
MILAS

Wikileaks

06ASTANA817, KAZAKHSTAN: PETROKAZAKHSTAN LEGAL CASE WINDS DOWN

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Reference ID Created Released Classification Origin
06ASTANA817 2006-12-12 04:07 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO2328
PP RUEHDBU
DE RUEHTA #0817/01 3460407
ZNY CCCCC ZZH
P 120407Z DEC 06
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 7922
INFO RUCNCIS/CIS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 03 ASTANA 000817 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
 
E.O. 12958: DECL: 12/11/2015 
TAGS: ENRG EPET KZ CASC
SUBJECT: KAZAKHSTAN: PETROKAZAKHSTAN LEGAL CASE WINDS DOWN 
 
REF: A. 05 ALMATY 3150 
 
     B. 05 ALMATY 3857 
     C. ASTANA 90 
 
Classified By: Pol-Econ Chief Deborah Mennuti; reasons 1.5 (b) and (d). 
 
1. (C) Summary:  On November 14, an Almaty district court 
convicted three expatriate former executives (two AmCits) of 
PetroKazakhstan (PK) of criminal violations of Kazakhstan's 
anti-monopoly law.  The judge simultaneously granted the 
defendants amnesty and lifted a travel ban that had been in 
place since the criminal charges were filed in April 2005. 
The only AmCit defendant remaining in Kazakhstan, Tom Dvorak, 
plans to depart Kazakhstan on December 17. 
 
2. (C) Summary (continued):  PK's controversial October 2005 
sale to the Chinese National Petroleum Company (CNPC) 
recently came two steps closer to closure, as Kazakhstan's 
national oil and gas company, KazMunaiGaz (KMG), finalized a 
deal on November 16 to purchase 50% of PK's Shymkent 
refinery; and Lukoil won an October 30 arbitration ruling 
granting it a preemptive right to acquire PK's half of the 
Turgai oil field (at the price paid by CNPC).  An argument 
can be made that the legal case of the PK executives was 
manipulated to enhance the GOK's leverage in its post-sale 
negotiations with CNPC to acquire a share of the PK assets. 
While PK's ten-year experience in Kazakhstan has arguably 
been unique, it nevertheless offers several perspectives from 
which to evaluate Kazakhstan's investment climate. End 
summary. 
 
PK Executives Convicted -- and Amnestied 
---------------------------------------- 
 
3. (C) On November 14, after an intermittent 8-month trial, 
an Almaty district court convicted three former expatriate 
executives of the Canadian oil company PetroKazakhstan (PK) 
of criminal violations of the anti-monopoly law, sentencing 
them to three years' imprisonment.  (In addition to the two 
American citizens, Tom Dvorak and Robert Goldsmith, and a 
Canadian, Clayton Clift, the court also convicted twelve 
Kazakhstani PK employees.)  All the PK employees were then 
granted amnesty under a January 2006 "Independence Day" 
Amnesty Law, and the court lifted a travel ban in place since 
April 2005.  (Note: Of the three expatriates, only Dvorak 
remained in Kazakhstan through the trial's end. Dvorak told 
Econoff on November 29 that he plans to leave Kazakhstan on 
December 17.  End note.)  The defendants have appealed the 
conviction. 
 
4. (SBU) Note: Another AmCit PK employee, Dan Hermann, was 
granted amnesty in January 2006 in what was, legally, an 
unrelated case.  Hermann was charged with violating the terms 
of PK's exploration license (Ref A). 
 
Origin of the Criminal Charges 
------------------------------ 
 
5. (SBU) The criminal charges stem from activities PK 
undertook, beginning in 2002, to sell refined products from 
PK's Shymkent refinery at prices higher than those 
established by Kazakhstan's Agency for the Regulation of 
Natural Monopolies.  PK executives attempted to avoid the 
application of the Monopoly Law by dividing the sales of its 
refined products, previously undertaken by a single business 
entity, among seven newly-created companies.  Each of the 
seven companies allegedly managed the volumes of its regional 
sales, selling into one another's respective regions, to 
avoid establishing the 35% market share required to apply the 
monopoly price ceilings. 
 
6. (C) Dvorak told Econoff on November 29 that, 
notwithstanding the conviction, the Procurator's case "was 
full of holes." One example, he explained, was the fact that 
he, Dvorak, did not even begin working for PK until August 
2003, and thus could hardly have contributed to the alleged 
"conspiracy" begun in 2002 to evade the law.  Further, he 
argued, the refinery's privatization agreement, drafted in 
the late 1990's when the State first sold its interest in the 
refinery, guaranteed that the refinery's products would not 
be subject to future price controls.  And finally, Dvorak 
said, the Procurator had never established in court that PK's 
distribution scheme had resulted in higher prices for the 
refined products. 
 
7. (C/NF) However, Dvorak admitted, in retrospect PK "clearly 
should have done things differently."  The defendants' case 
 
ASTANA 00000817  002 OF 003 
 
 
had been undermined, he noted, by the exposure of an internal 
memo, written by PK's lawyers, warning that creating the new 
distribution companies would make the company vulnerable to 
charges of anti-monopoly violations. 
 
"Why Us?" -- Making Sense of the Past 
------------------------------------- 
 
8. (C/NF) In seeking to explain the cause ("why us?") of 
their legal problems, the PK executives have favored 
different hypotheses at different times. Prior to the 
company's announced sale to CNPC, Dvorak and Goldsmith often &#
x000A;defended the thesis that PK's legal problems were the result 
of a GOK plot (perhaps in collusion with Lukoil) to drive 
down PK's share price prior to a planned bid to buy the 
company.  According to this theory, KMG had long coveted the 
Shymkent refinery.  Dvorak and Goldsmith tended to see most 
of the company's legal problems in this light, including 
several legal disputes with its joint venture partner Lukoil, 
and the GOK's enforcement of gas flaring restrictions which 
forced a 30% cut in PK's 2005 oil production. 
 
9. (C/NF) Following the announcement of PK's sale to CNPC, 
Goldsmith and Dvorak found hope that the legal case against 
them would be dropped -- after all, as they argued at the 
time, there was no further reason for the GOK to target PK's 
stock price.  As the legal case against them moved forward, 
however, they adopted a different hypothesis: that the GOK, 
taken by surprise by the sale, was using the legal case as 
leverage in post-sale negotiations to acquire key PK assets 
from the Chinese.  (Note:  Much evidence points to the fact 
that the GOK was caught unprepared by the sale, the most 
dramatic of which was a series of amendments which the GOK 
rushed into law before the deal was finalized (Ref B), which 
extended the GOK's "preemptive rights" and thus strengthened 
its negotiating position with CNPC.  A KazMunaiGaz (KMG) 
contact told us at the time that the GOK had been 
unpleasantly surprised by the high price paid by CNPC -- a 
price KMG would have to match, under the preemptive right 
legislation, to acquire the PK assets.  End note.) 
 
Refusing Amnesty and Other Legal Oddities 
----------------------------------------- 
 
10. (C) The guilt or innocence of the executives aside, the 
anti-monopoly case took more than one questionable turn in 
the Winter and Spring of 2005-06, which fed the executives' 
sense that they were pawns in a bigger game. The most curious 
of these was the Procurator's refusal to apply the Amnesty 
Law in January and February 2006, before the case went to 
trial, despite PK's repeated legal appeals and Embassy 
requests for close consideration.  (The Embassy also voiced 
concern about the tendency, present both in this case and in 
recent AES  disputes, of the authorities to file criminal 
charges in what are essentially civil cases.)   In Spring 
2006, the trial judge also refused, during pre-trial motions, 
to dismiss the case on the basis of the amnesty -- only to do 
so at trial's end. 
 
11. (C/NF) As further evidence that his case was being 
manipulated for larger purposes, Dvorak cites the fact that 
the list of alleged victims of PK's "monopolistic" activities 
-- companies which allegedly overpaid for refined products -- 
grew in apparent synchrony with the reported intensity of the 
GOK's negotiations with CNPC.  (The dollar amount of these 
alleged damages reached, at one point, approximately $750 
million, before shrinking throughout the summer of 2006, 
under examination of the court, to approximately $55 million. 
 These damages represent PK liabilities which CNPC legally 
assumed upon purchasing the company.  Dvorak, who remained on 
PK's payroll even after the company's sale to CNPC, told 
Econoff that this (inflated) dollar figure was being used as 
a bargaining chip in the GOK-CNPC negotiations.)  Dvorak also 
asserts that the list of alleged victims of the crime was 
populated by numerous brand-new companies created, 
presumably, in order to file claims and make a buck from PK's 
legal problems. PK's lawyers, Dvorak claims, were able to 
establish that fourteen of the allegedly unrelated victimized 
companies, in fact, shared a single bank account.  Dvorak 
believes that the courts may have refused to grant amnesty in 
January 2006 in order to allow these "victimized" companies 
the opportunity to collect in court.  (In denying application 
of the Amnesty Law, the Procurator's office cited a need to 
gain the consent of all injured parties before applying the 
amnesty.)  And, finally, Dvorak believes that his own 
conviction may have been "necessary" as evidence in the 
ongoing legal case to collect the $55 million from CNPC. 
 
ASTANA 00000817  003 OF 003 
 
 
 
12. (C/NF) Comment:  While it is easy to blame Kazakhstan's 
weak judicial system for many of the recent legal cases 
involving Western investors -- and we readily do so, here, in 
the instance of the non-applied amnesty -- it is worth 
pointing out that companies take on different level of "legal 
risk," by virtue of adopting conservative or aggressive legal 
and accounting practices, just as they take on differing 
levels of financial risk in making their investments. 
PetroKazakhstan, it appears to us, may have pushed the legal 
envelope.  Even without taking a hard position on the justice 
of the anti-monopoly verdict, however, we clearly decry one 
of the more insidious aspects of the current investment 
climate in Kazakhstan -- the discretion of authorities to 
file criminal charges in cases which are essentially civil in 
nature, without meeting Western standards for establishing 
criminal intent. 
 
13. (C) Comment (continued):  With the recent sale of PK and 
Nelson Resources, the ongoing CITIC bid to buy NationsEnergy 
(Ref C), and growing rumors of a Chinese bid for 
MangistauMunaiGas, we may be witnessing the end of the 
ownership of Kazakhstan's mid-sized oil fields by private 
investors and mid-sized foreign companies.  As these 
investors move out, cashing in on high oil prices, KMG is 
likely to exercise its preemptive rights to take a share of 
the assets, thus expanding its onshore presence in parallel 
with its legislatively-prescribed requirement to take part in 
all offshore projects.  Perhaps paradoxically, KMG's growing 
presence is likely to improve the investment climate for 
project partners.  As KMG's Kashagan partners tell us, having 
KMG as a partner is helpful when addressing legal or fiscal 
issues raised by the GOK.  While KMG's new role, onshore and 
off, is usually seen as a means to develop the national 
company, and gradually expand State ownership and control 
over Kazakhstan's hydrocarbon reserves, it may also serve as 
means to institutionalize, and thus tame, the "Wild West" 
characteristics of Kazakhstan's oil patch.  End comment. 
MILAS

Wikileaks

06ASTANA738, KAZAKHSTAN: CONOCOPHILLIPS UPDATES AMBASSADOR ON

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Reference ID Created Released Classification Origin
06ASTANA738 2006-12-06 07:04 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO7376
PP RUEHDBU
DE RUEHTA #0738/01 3400704
ZNY CCCCC ZZH
P 060704Z DEC 06
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 7847
INFO RUCNCIS/CIS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000738 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
COMMERCE FOR ADVOCACY CENTER: BLOPP AND DBLOOM 
 
E.O. 12958: DECL: 12/05/2015 
TAGS: BTIO ENRG EPET KZ
SUBJECT: KAZAKHSTAN: CONOCOPHILLIPS UPDATES AMBASSADOR ON 
"N" BLOCK, KASHAGAN 
 
REF: A. ASTANA 204 
     B. ALMATY 2157 
     C. ALMATY 1085 
 
Classified By: Ambassador John Ordway; Reasons 1.5(b) and (d). 
 
1. (C) Summary:  ConocoPhillips (CP) Executive Vice President 
Bill Berry told the Ambassador on the morning of December 1 
that rival Shell had recently approached CP with a proposal 
to split the offshore "N" Block.  CP had declined the offer, 
Berry said, pending an anticipated meeting with Kazakhstani 
Deputy Prime Minister Karim Masimov, whom President 
Nazarbayev had chosen to broker a final "N" Block deal. 
Following a meeting later that afternoon in which Berry 
received unspecified "bad news" from Energy Minister 
Izmukhambetov and KazMunaiGaz President Karabalin, CP 
urgently requested Ambassador's assistance in contacting 
Masimov in the U.S.  Masimov and CP Chairman Jim Mulva spoke 
later in the day, but as of December 2 CP reported no 
progress in clarifying the status of their bid. 
 
2. (C) Summary (continued):  Speaking of Kashagan, Berry 
reported that project partners had recently selected a new 
design for an offshore platform judged to pose safety risks; 
the corresponding first-stage infrastructure will accommodate 
production of 300,000 barrels/day (b/d), rather than the 
450,000 b/d initially planned.  Berry confirmed reports (Ref 
A) that Chevron was seeking a role in the ongoing Kazakhstan 
Caspian Transportation System (KCTS) discussions, with an eye 
toward using the planned Eskene-Kurik pipeline to ship 
"second-generation" Tengiz oil.  End summary. 
 
 
"N" Block: CP's Status Unclear 
------------------------------ 
 
3. (C) The Ambassador opened the meeting by briefing Berry on 
his recent conversation with Masimov on the status of CP's 
bid to participate in the development of the offshore "N" 
Block. Masimov he explained, had confirmed that President 
Nazarbayev had assigned him to sort out Shell and CP's 
competing offers.  Masimov had noted that Shell had recently 
improved its offer, making the two companies' bids virtually 
equal.  The best outcome, Masimov had concluded, would be a 
shared deal. The Ambassador suggested that Masimov was 
probably hoping that Shell and CP would reach agreement on a 
joint proposal, thus sparing Masimov and the GOK a difficult 
decision. Speculating that Shell had likely received the same 
message from Masimov Berry informed the Ambassador that Shell 
had approached CP "two weeks ago" with a proposal to split 
the block.  CP had declined, Berry said, pending an 
anticipated meeting with Masimov which he had hoped to hold 
that day, but which had been rescheduled for December 15. 
 
4. (C) Berry told the Ambassador that, during an afternoon 
meeting with Izmukhambetov, he expected to be pressured to 
build a petrochemical facility as part of the "N" Block deal, 
as Mulva had been pressured in June (Ref B).  However, he 
added, "no one," including Shell, would commit to building a 
petrochemical facility in Kazakhstan, least of all before the 
quantity and quality of available gas was determined.  Not 
only was the Caspian 3,000 miles away from prospective 
markets -- China and Europe -- but the end products would 
compete with higher-value crude for limited railway capacity. 
 Kazakhstan would do better to liquefy the feedstocks for 
shipment by pipeline, Berry concluded, rather than add 
transport costs by transforming them into solids such as 
polyethelene.  (Note: Post will report septel on GOK efforts 
to gain TengizChevrOil's cooperation in a petrochemical 
project.  End note.) 
 
5. (C) CP called back after the meeting with Izmukhambetov 
and Karabalin, reporting that Izmukhambetov had delivered 
"bad news" on the "N" Block.  CP asked for the Ambassador's 
assistance in urgently reaching Masimov who was visiting the 
U.S.  Ambassador reached Masimov shortly thereafter, and 
Masimov called Mulva later on December 1, but as of the 
morning of December 2 CP had not received a clear sense 
whether Izmukhambetov's "bad news" had been authoritative. 
(Note: Due to concerns about cell phone security, CP did not 
elaborate on what the "bad news" was.  A journalist told 
Energy Officer on December 2 that Izmukhambetov had told a 
colleague on December 1 that Shell would be given 35% of "N", 
and CP 15%, but his rumor is unconfirmed.  End note.) 
 
 
ASTANA 00000738  002 OF 002 
 
 
Kashagan:  Coping with the Design Flaw 
-------------------------------------- 
 
6. (C) Berry reported that Kashagan partners had recently 
selected a new design and development plan to correct flaws 
discovered a year ago in the design of an offshore platform 
(Ref C).  The new plan, he said, called for the construction 
of an initial 300,000 barrel/day production train, rather 
than the 450,000 barrel/day train initially planned.  (Berry 
did not specify when "fi
rst oil" was expected.  On November 
29, however, an ExxonMobil representative told Energy Officer 
that the new plan entailed a delay in "first oil" "at least 
until 2011 -- and maybe longer.")  Berry told the Ambassador 
that he expected the GOK to launch a fierce battle to recoup 
revenues lost due to the delays and cost overruns.  While the 
Kashagan partners were "okay" from a contract perspective, no 
oil company can win "going toe-to-toe with a sovereign 
nation," and a pay-off of some magnitude seemed inevitable. 
 
7. (C) Berry told the Ambassador that the other project 
partners had largely succeeded in diluting operator AGIP's 
management responsibilities, in response to partner 
perception that AGIP was to blame, at least in part, for the 
delays and cost overruns. The other companies had seconded 
"thirty to forty" additional managers to the project, he 
said, and now occupied not only the "Project Director" 
position but four "key" Deputy Director slots. 
 
KCTS Process: Chevron Wants In 
------------------------------ 
 
8. (C) CP's Country Manager, Nick Olds, confirmed 
ExxonMobil's earlier report (Ref C) that Chevron was seeking 
to join the ongoing Kazakhstan Caspian Transportation System 
(KCTS) discussions, with an eye toward shipping 
second-generation Tengiz volumes through a planned 
Eskene-Kurik pipeline in the years before CPC expansion. 
Project investors were hoping to finalize an MOU with the GOK 
before year's end, Olds said, in order to pave the way for 
Host Government Agreement (HGA) negotiations during 2007. 
 
9. (C) Berry told the Ambassador that at least some of 
Kashagan's European partners appeared inclined to ship their 
Kashagan volumes through Iran, while ExxonMobil and CP were 
still focused on the Baku-Tblisi-Ceyhan (BTC) pipeline.  With 
production from Azerbaijan's Azeri-Chirac-Guneshli (ACG) oil 
field now expected to prolong Azerbaijan's production 
plateau, he said, BTC shareholders (including CP) were 
already talking about BTC expansion.  Berry expressed 
interest in the USTDA-financed Trans-Caspian pipeline 
feasibility study, commenting that, with its projected 
"sizable" gas reserves, the "N" block might "be the starting 
point" for discussions about Kazakhstan's available gas 
supplies. 
ORDWAY

Wikileaks

06ASTANA737, TENGIZ UPDATE: RIOT DELAYS PRODUCTION INCREASE

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Reference ID Created Released Classification Origin
06ASTANA737 2006-12-06 02:55 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO7229
PP RUEHDBU
DE RUEHTA #0737/01 3400255
ZNY CCCCC ZZH
P 060255Z DEC 06
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 7845
INFO RUCNCIS/CIS COLLECTIVE
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000737 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
 
E.O. 12958: DECL: 12/05/2015 
TAGS: ENRG EPET KZ
SUBJECT: TENGIZ UPDATE: RIOT DELAYS PRODUCTION INCREASE 
 
REF: A. ASTANA 501 
 
     B. ALMATY 2273 
 
Classified By: DCM Kevin Milas; Reasons 1.5(b) and (d). 
 
1. (C) Summary: TengizChevrOil (TCO) General Director Todd 
Levy told DCM on November 27 that the October 20 riot at 
Kazakhstan's Tengiz oil field (Ref A) -- and the subsequent 
exodus of site workers -- would likely delay "second 
generation" Tengiz production from 4-6 months, until year-end 
2007.  Levy was more sanguine about TCO's ongoing dispute 
with the GOK about sulfur disposal, reporting that the GOK 
appeared satisfied with work being done on the subject by a 
recently-created Joint Task Force.  Levy described how, 
following a request from President Nazarbayev to Chevron 
Chairman David O'Reilly, TCO had entered into negotiations to 
supply ethane (on "uneconomic terms") to a planned 
petrochemical plant near Atyrau.  The negotiations, Levy 
predicted, would fail absent renewed high-level political 
pressure.  TCO has identified several other promising oil and 
gas fields within its license area; however, with production 
"limited by surface facilities," development of these fields 
is unlikely until Tengiz is in decline.  Levy's comments on 
TCO's oil transportation vision reported septel by Embassy 
Moscow.  End summary. 
 
Brawl Delays Second-Generation Production 
----------------------------------------- 
 
2. (C) Astana DCM and Energy Officer, along with Moscow 
Energy Officer, called on Levy in Atyrau on November 27. 
Levy informed the DCM that the recent riot at Tengiz would 
likely delay the start-up of "second generation" Tengiz 
production "four to six months" from the target date of June 
2006 (Ref B).  (Note: the production increase, which will 
roughly double TCO's current output of 270,000 barrels/day, 
will occur in two stages, with an additional 100,000 b/d 
added in 2007, and another 130,000 b/d added in 2008. End 
note.)  The brawl had not interrupted current production, 
Levy explained -- TCO would meet 98.5% of its targeted 2006 
output.  However, the construction project was suffering from 
the absence of workers who had left the site after the 
incident.  (TCO Government Relations Director Anthony 
Palmeirim later specified that 1600 expatriate workers -- the 
vast majority Turks -- had left the site and had yet to 
return.  On December 1, ExxonMobil's Government Relations 
Director, Patty Graham, told Energy Officer that a total of 
4000 workers were absent, many of them Kazakhstani workers 
finding themselves without supervision.) 
 
3. (C) Levy explained that, as a consequence of the incident 
and pressures from both the central and the oblast 
governments, TCO had doubled the minimum construction wage at 
the site to roughly 54,000 tenge a year (USD 420).  Levy 
noted that TCO was actively seeking to replace Turkish 
workers on site with those of other nationalities, 
"particularly Poles and Hungarians," as the site's 
Kazakhstani workers were more accepting of non-Turkish 
supervisors. TCO was also taking a general (and much-needed, 
Levy admitted) look at the overall living conditions at the 
contractor work camps.  While the local akim would 
undoubtedly continue to get "political mileage" out of the 
incident, and made occasional threats about withholding 
low-skilled work permits, Levy was optimistic that the 
political aspects of the crisis were under control, leaving 
him to wrestle with the issue of labor supply. 
 
4. (C) Note: On November 28, Richard Fritz of AGIP KCO (the 
Kashagan field operator), told DCM that AGIP had suffered 
labor unrest a few days after the Tengiz incident.  Turkish 
workers had complained that they "felt threatened," he 
explained, and 3-4,000 Turkish workers had refused to report 
to work.  In the end, he said, AGIP had managed to get the 
vast majority back to work, losing only 200 permanently. 
ExxonMobil's Graham worried about another consequence of the 
riot in a November 29 conversation, telling Energy Officers 
that the Ministry of Education had recently published a 
document in response to the riot which called on greatly 
increased private sector (read: oil company) financing of 
vocational education programs.  The document, she said, would 
likely be a topic of conversation at the upcoming Foreign 
Investor Council meeting, where it would likely draw 
Nazarbayev's attention.  End note.) 
 
Sulfur Disposition On Track 
--------------------------- 
 
5. (C) Levy told DCM that, notwithstanding the GOK's very 
 
ASTANA 00000737  002 OF 002 
 
 
vocal late-summer criticism of TCO's sulfur stockpiles, the 
issue seemed to be under control.  TCO had formed a Joint 
Task Force with various government ministries on the issue 
two months previous, he said, which seemed to have satisfied 
the GOK of TCO's intent to resolve the problem.  TCO, Levy 
explained, was working through the Task Force to fund an 
environmental impact assessment, and to otherwise ground the 
discussion on the real (scientific) impact of the stored 
sulfur.  Levy emphasized th
at TCO was continuing to meet its 
contractual obligations to dispose of sulfur -- in 2006, he 
said, TCO would likely sell 104% of the sulfur it produced, 
while working on a sales expansion project that would 
eventually raise that rate to 125%.  Levy pointed out that, 
by the time the "Second Generation Production / Sour Gas 
Injection" project was completed, Tengiz alone would produce 
15% of the world's supply of sulfur.  Selling the 
newly-produced sulfur would be a daunting task in itself, he 
concluded, even without working to reduce the estimated 8 
million tons of sulfur stored on site. 
 
Petrochemicals -- With Political Pressure 
----------------------------------------- 
 
6. (C) Asked about reports that TCO had agreed to supply 3 
billion cubic meters (bcm) of gas annually to a planned 
petrochemical complex in Atyrau (to be built by "Kazakhstan 
Petrochemical Industries (KPI)" -- which, in turn, is owned 
by Basell, SAT & Co., and KMG E&P), Levy confirmed that 
negotiations were ongoing.  Nazarbayev had "pressed" 
Chevron's Chairman "to be supportive" of the venture, Levy 
said, adding that "the only reason we are doing this is 
politics -- just to support the President." 
 
7. (C) Levy explained that TCO and KPI had already agreed on 
a sales price, "$30-40 / thousand cubic meters," which was 
roughly half of what KPI would pay to draw gas from the 
nearby Central-Asia-Center pipeline.  In the short-term, Levy 
said, KPI would sell the unused gas fractions (once the 
ethane and/or propane was extracted) on the market.  However, 
in the medium term TCO would need the gas for re-injection, 
and so would require KPI to "backfill" the volumes it 
received, purchasing additional gas on the open market, if 
necessary, to replace the extracted fractions.  All of this, 
Levy concluded, meant that the project was probably 
"uneconomic."  KPI would likely ask for a lower gas price and 
relief from the backfill obligations, he said, "but we're 
unlikely to reach agreement" -- unless the issues resolved at 
a political level; i.e., between Nazarbayev and Chevron 
Chairman David O'Reilly. 
 
Other Promising Oil Fields 
-------------------------- 
 
8. (C) DCM met separately with a team of TCO geologists, who 
reviewed the characteristics of eight additional "prospects" 
within the license area, including "Ansagan," which had 
excited Levy during conversation in June (Ref B). All of the 
prospects appeared to have between 200 million and 1 billion 
barrels of oil, "not enough to warrant the construction of 
stand-alone facilities."  Tengiz production, in turn, was 
already limited by surface facilities ("and not by reservoir 
performance"), making it unlikely that the Tengiz facilities 
would be used to process oil from a new find.  (Note: Oil 
from Korolev, a field 10 kilometers from Tengiz, is already 
being produced using Tengiz facilities.) Meanwhile, TCO was 
under pressure from regulators to either develop more fields 
or to allow other operators in the area. TCO is contractually 
obligated to relinquish percentages of its license area over 
time -- 50% by 2008, for example.  While TCO was yet to 
relinquish acreage it thought was promising, the challenges 
of "managing the exploration license" would grow with time. 
ORDWAY

Wikileaks

06ASTANA580, KAZAKHSTAN: AES UPDATES AMBASSADOR ON IPO,

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Reference ID Created Released Classification Origin
06ASTANA580 2006-11-15 11:41 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO9420
PP RUEHDBU
DE RUEHTA #0580/01 3191141
ZNY CCCCC ZZH
P 151141Z NOV 06
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 7677
INFO RUCNCIS/CIS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000580 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
 
E.O. 12958: DECL: 11/14/2016 
TAGS: ENRG EPET KZ PGOV PREL RS
SUBJECT: KAZAKHSTAN: AES UPDATES AMBASSADOR ON IPO, 
REGIONAL INVESTMENTS 
 
REF: A. ASTANA 379 
 
     B. ALMATY 2052 
 
Classified By: Amb. John Ordway, reasons 1.5 (b) and (d). 
 
1. (C) Summary: AES's Dale Perry briefed the Ambassador on 
November 7 on AES's preparations for an IPO of its regulated 
Kazakhstani assets; the company's efforts to buy three CHP 
(combined heat/power) plants in Omsk, Russia; and several 
avenues of possible cooperation with Samruk, Kazakhstan's 
holding company for state-owned assets.  On the subject of 
regional electricity integration, Perry reported that he had 
signed an MOU with Kyrgyz Prime Minister Kulov on November 6 
governing the construction of a 220kV transmission line 
across Kyrgystan.  AES's Ekibastuz Gres I plant had produced 
a record volume of electricity in October, Perry reported, 
and with prices trending upward, new long-term supply 
contracts on the horizon, and signs of further GOK regulatory 
reform, business in Kazakhstan has never been better for AES. 
End summary. 
 
Planned IPO of Regulated Assets 
------------------------------- 
 
2. (C) Perry, AES's Regional Director for Eastern Europe and 
the CIS, informed the Ambassador that AES's planned IPO of 
40-45% of its regulated Kazakhstani assets (including two CHP 
plants and a trading company) had "stalled," due to 
complications in harmonizing international accounting 
systems.  Perry estimated that the IPO -- expected to raise 
$500-$600 million -- would take place in May or June 2007. 
Samruk, Perry explained, was likely to buy a 15-20% stake in 
the regulated companies as a "strategic partner." 
 
Further Cooperation with Samruk? 
-------------------------------- 
 
3. (C) Perry explained that AES and Samruk were discussing 
other areas of potential partnership, including possible AES 
investment in a series of joint stock companies which had 
been transferred to Samruk, effective October 24.  (Note: 
Nine of the seventeen new companies incorporated into Samruk 
are energy companies, including three hydropower stations 
which AES operates on a concession from the GOK. Other 
notable companies incorporated into Samruk include Air 
Astana, Kazmortransflot, and the Astana, Pavlodar, and Aktobe 
airports.)  The state-owned electricity assets needed new 
investment, Perry explained, and AES would be a logical 
partner. 
 
4. (C) Perry also described AES's discussions with Samruk 
about possible cooperation in regional electricity projects. 
Samruk subsidiary KEGOC (the national grid company) would be 
a natural partner in AES's regional transmission line 
investments, Perry told Energy officer after the meeting, 
while KazMunaiGaz subsidiary "KMGEnergy" appeared interested 
in co-investing in a new Tajikistan hydropower project. 
However, Perry cautioned, Samruk was insisting that there be 
"Kazakhstani clients" for the hydropower project -- a demand 
which theoretically fit AES's desire to have a "backup sales 
plan" for the investment should selling power to Pakistan 
prove impossible.  Further on the subject of regional 
electricity, Perry informed the Ambassador that he had just 
signed an MOU with Kyrgyz Prime Minister Kulov granting AES 
24-month exclusivity to build the trans-Kyrgyz portion of the 
planned 220kV line stretching from the Kazakhstan/Kyrgystan 
border to the Tajikistan/Afghanistan border. 
 
 
AES Looks to Enter Russian Market 
--------------------------------- 
 
5. (C) Perry told the Ambassador (in confidence) that AES was 
"close" to acquiring a majority share in three CHP  plants 
(2000 combined MW) and "two old boilers" in the Omsk region 
of Russia.  AES had already reached agreement with SUEK 
(Siberian Coal Energy Company) to purchase a "blocking share" 
of the assets, Perry indicated; now the company was 
negotiating with UES to acquire sufficient additional shares 
to constitute a majority.  UES had been "nervous" about 
transferring a stake in a "strategic asset" to AES, Perry 
admitted, but AES had received a verbal "okay" on the deal 
from the Russian Anti-Monopoly Committee, and prospects 
looked good.  If the deal went through, Perry added, AES 
would be the first U.S. power generation company to enter the 
Russian market. 
 
ASTANA 00000580  002 OF 002 
 
 
 
"How Things Have Changed in Two Years..." 
----------------------------------------- 
 
6. (C) In addition to the IPO, prospective investment in 
Russia and growing cooperation with Samruk, Perry outlined 
other reasons to be upbeat about AES's regional business. 
The company's Ekibastuz Gres I coal-fired plant had set a 
plant record in October, he said, generating one billion kW 
of electricity.  The plant had run its four operating 500 MW 
blocks around the clock, he said, without suffering any 
break-downs -- proof that AES's investment in plant 
main
tenance had been effective.  Plans were moving forward to 
rehabilitate the first of AES's idle 500 MW blocks, based on 
AES's recent success in securing long-term generation 
contracts.  The company had recently signed two ten-year 
contracts for 90 MW, Perry explained.  More importantly, 
negotiations were underway on contracts for another 1600 MW, 
including a 1000 MW contract with "Russian Aluminum," the new 
entity created from the merger of SUAL, Rusal, and Glencore 
(Ref A).  Asked about AES's possible involvement in a Chinese 
investment to build what would be the world's largest power 
plant (7200 MW) in NE Kazakhstan (Ref B), Perry replied that 
he had no update, but was expecting news to emerge from 
Nazarbayev's December trip to Beijing. 
 
7. (C) Perry reported two other positive news items:  in a 
November 6 ministerial meeting, he said, KEGOC President 
Kanat Bozumbayev had acknowledged that Kazakhstan would face 
electricity shortages by 2008, and had admitted that 
regulatory reform -- and a rise in prices to 4 cents / kwH -- 
would be necessary to attract necessary investment. 
Furthermore, said, AES appeared close to securing a 
three-year distribution tariff from the government -- a 
breakthrough deal which would allow AES's distribution 
companies, at long last, to make planned investments and 
upgrades.  Reacting to Perry's long list of good news, the 
Ambassador remarked how dramatically things had changed for 
AES in the two years he had been in Kazakhstan.  Perry agreed 
that the change had been dramatic, adding that AES corporate 
management would never have approved AES's entry into the 
Russian market (para. 4) if things had not smoothed out for 
AES in Kazakhstan. 
 
...And How They've Stayed the Same 
---------------------------------- 
 
8. (C) Laughing, Perry noted that despite his optimism and 
AES's growing regional business, in many ways things had 
stayed the same for AES.  The local financial police in 
Ust-Kamenogorsk, he said, had recently opened a tax case 
against AES, claiming that the company owed the tax 
liabilities of the bankrupt CHPs it had acquired in 1997. 
Further, AES had recently lost an environmental case 
concerning its Maikuben coal mine, and now faced a $4 million 
fine.  AES could have avoided the fine, Perry explained, by 
buying $150,000 worth of overpriced spare parts from the 
environmental inspector who carried out the investigation -- 
but had chosen not to pay the bribe and fight the case in 
court instead. 
ORDWAY

Wikileaks

06ASTANA379, KAZAKHSTAN: ACCESS INDUSTRIES TO MANAGE EKIBASTUZ

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Reference ID Created Released Classification Origin
06ASTANA379 2006-11-01 06:16 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO5892
PP RUEHDBU
DE RUEHTA #0379/01 3050616
ZNY CCCCC ZZH
P 010616Z NOV 06
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 7486
INFO RUCNCIS/CIS COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1285
RUEHIL/AMEMBASSY ISLAMABAD 2089
RUEHBUL/AMEMBASSY KABUL 0273
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000379 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
USTDA FOR DAN STEIN, SCOTT GREENIP 
COMMERCE FOR PAUL HUEPER 
 
E.O. 12958: DECL: 11/01/2016 
TAGS: ENRG EPET KZ PGOV PREL
SUBJECT: KAZAKHSTAN: ACCESS INDUSTRIES TO MANAGE EKIBASTUZ 
GRES II POWER PLANT 
 
REF: A. ALMATY 2155 
 
     B. ALMATY 2054 
 
Classified By: Pol-Econ Chief Deborah Mennuti; reasons 1.5 (b) and (d). 
 
1. (C)  Summary:  In August 2006, U.S.-based Access 
Industries assumed management control of Kazakhstan's 50% 
share of the 1000 MW Ekibastuz Gres II power plant, 
reportedly in return for financing plant upgrades and 
constructing one or two additional 500-600 MW generating 
units.  (Russia's RAO UES owns the other 50% of Gres II.)  An 
executive of a rival generating company, AES, told Econoff 
that the decision to allow Access to buy into Gres II appears 
to have been facilitated by conflicts between RAO UES, which 
sought to sell the plant's output at below-market prices to 
Russia's electricity import monopoly, INTER RAO UES; and the 
Government of Kazakhstan (GOK), which habitually sold a 
portion of the plant's output to well-placed Kazakhstani 
entities at below-market prices.  In AES's view, Access is 
likely to impose discipline on the plant's selling 
agreements, and undertake the investment necessary to 
maintain the existing capacity, but is unlikely to spend the 
estimate $1.2 billion necessary to add 1000 MW of generating 
capacity.  End summary. 
 
2. (C) Access Industries and Kazakhstan's Ministry of Energy 
and Mineral Resources signed an agreement on August 21, 
granting Access a 50% interest of Gres II "in trust 
management" for a period of 10 years, in return for upgrading 
the plant's two existing 500 MW blocks and financing the 
construction of a third (and possibly a fourth) 500-600 MW 
block.  The deal follows by 27 months Kazakhstan's transfer 
of 50% of the plant to RAO UES as settlement of a 
long-standing, Soviet-era debt (reportedly $200 million) for 
unpaid electricity. 
 
3. (C) Access executives have thus far dodged post's requests 
for further information about the deal.  Executives of rival 
generating company AES, however, have suggested that Access 
was brought in to manage the plant in order to reconcile the 
incompatible business interests of RAO and state-owned 
Ekibastuz Energocenter JSC. AES's Regional Director for 
Eastern Europe and the CIS, Dale Perry, explained to Econoff 
that Russia wanted RAO to sell the plant's electricity at 
below-market prices to Russia's electricity import 
monopolist, INTER RAO UES, which would then resell the power 
within Russia, cutting Kazakhstan out of the profit.  The 
Kazakhstanis, in turn, were accustomed to selling Gres II 
power to well-placed Kazakhstani entities at less-than-market 
prices.  Two years after forming the joint venture, neither 
partner was happy with the other's loss-making business 
decisions, Perry concluded, so Access was brought in. 
 
4. (C) AES's Kazakhstan Country Manager, Mike Jonagan, 
amplified on the subject on September 15, telling Econoff 
that Access had been brought in to "say 'no' to 
bargain-seekers the GOK couldn't say 'no' to."  Jonagan 
explained that Access's expected rationalization of the Gres 
II contracts had already had an effect.  KazPhosphate, he 
explained -- one of Kazakhstan's largest electricity 
consumers -- had already approached AES looking for a 
low-cost electricity deal, anticipating that its below-market 
deal with Gres II would now be terminated.  (Jonagan 
explained that KazPhosphate's very survival in the face of 
low-cost Chinese competition hinged on below-market 
electricity subsidies. KazPhosphate executives and GOK 
officials alike periodically approached AES, he said, asking 
for below market electricity in order to keep the company 
alive.  Much of the rationale for GOK subsidization of the 
Zhambyl fuel-oil power plant, he added, was to keep 
KazPhosphate, and its estimated 6500 jobs, afloat.) 
 
5. (C) According to press reports, approximately $90 million 
will be needed over the next four years to upgrade Gres II's 
existing 500 MW blocks.  Perry and Jonagan estimated the cost 
of installing additional generating capacity at $600-$700 
million per 500 MW.  Jonagan told Econoff that he doubted 
that the expansion would occur at that price, especially in 
light of the fact that AES had unused 500 MW blocks at its 
Ekibastuz Gres I plant which could be brought on-line for 
 
ASTANA 00000379  002 OF 002 
 
 
$250 million apiece.  In fact, he said, Gres II management 
was actively negotiating to buy AES's Gres I spare capacity. 
"We will offer them a price," he said, "but we're unlikely to 
reach agreement."  Gres II needed the space capacity, he 
explained, in order to pursue higher-paying customers. 
Without spare capacity, he explained, Gres II could not 
guarantee uninterrupted supply, and hence had to pursue 
low-price buyers -- "regional energy companies (RECs) and 
mining compani
es."  AES, on the other hand, could guarantee 
100% reliability, and hence had its choice of the "premier 
clients."  (Access Industries President Len Blavatnik 
described another possible means for expanding Gres II 
generating capacity in a June conversation with Ambassador 
Ordway reported ref A, saying that if Access was successful 
at buying into Gres II, it might consider transferring the 
turbines from its unprofitable Petropavlosk CHP plant to Gres 
II.  The objective, he said, was to increase capacity in 
order to sell additional power into Russia.) 
 
6. (C) Comment:  While Blavatnik / Access may be targeting 
the Russian market in the short-term, the recent news that 
Blavatnik's Siberian-Urals Aluminum Company (SAUL) plans to 
launch a feasibility study for construction of an aluminum 
smelter in Kazakhstan suggests possible alternative future 
use for Gres II electricity.  End comment. 
ORDWAY

Wikileaks

06ASTANA280, KAZAKHSTAN: FOREIGN MINISTER KEEPS COURSE FOR 2009

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Reference ID Created Released Classification Origin
06ASTANA280 2006-10-24 07:34 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO8076
PP RUEHDBU RUEHFL RUEHLA RUEHMRE RUEHROV RUEHSR
DE RUEHTA #0280/01 2970734
ZNY CCCCC ZZH
P 240734Z OCT 06 ZDK
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 7411
INFO RUCNCIS/CIS COLLECTIVE
RUCNOSC/OSCE POST COLLECTIVE
RUEHVEN/USMISSION USOSCE 1636
RUEAIIA/CIA WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000280 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR SCA/FO (A/S BOUCHER), SCA/CEN (SPRATLEN, O'MARA) 
 
E.O. 12958: DECL: 10/23/2015 
TAGS: OSCE PREL PHUM PGOV KZ
SUBJECT: KAZAKHSTAN: FOREIGN MINISTER KEEPS COURSE FOR 2009 
OSCE CIO 
 
 
Classified By: DCM Kevin Milas; Reasons 1.5(b) and (d). 
 
1. (C)  Summary:  On October 23, Foreign Minister Tokayev 
told Ambassador Ordway that the GOK would not accept the OSCE 
CiO compromise laid out in the October 4 USG "non paper." The 
existence of "pre-conditions" to the Kazakhstani 
chairmanship, he said, "would embarrass us."  Tokayev 
informed the Ambassador that he intended to address the 
non-paper proposal in his October 27 speech to the OSCE 
Permanent Council in Vienna. The GOK, Tokayev said, "would 
continue to insist" on the 2009 chairmanship.  However, he 
added, if no consensus on the issue could be achieved during 
the December OSCE Ministerial, the GOK would prefer that a 
decision be postponed until 2007, when Kazakhstan's political 
reforms could once again be evaluated.  In explaining the GOK 
resolve to press forward with its 2009 bid, Tokayev 
emphasized that, of the OSCE countries, "only the U.S." had 
proposed 2011 as an alternative. End Summary. 
 
Non-Paper Approach "Embarrassing" to Kazakhstan 
--------------------------------------------- -- 
 
2. (C) Asked by Ambassador Ordway for the GOK's views on the 
USG non-paper on Kazakhstan's OSCE CiO candidacy (delivered 
to the Kazakhstani Embassy in Washington on October 4), 
Tokayev told the Ambassador that the "memo was taken very 
seriously, but to us it isn't a case of implementing 
benchmarks."  He termed the proposal that Kazakhstan would 
delay its CiO bid until 2011, with OSCE member support 
conditional upon GOK implementation of agreed-upon democratic 
reforms,  "unacceptable to Kazakhstan...preconditions would 
embarrass us." 
 
3. (C) Ambassador Ordway told Tokayev that his main concern 
was not to debate Tokayev on the CiO issue, but rather to 
understand and convey the GOK's position to Washington. 
However, he emphasized, the non-paper proposals for 
democratic reform had been taken from Deputy Foreign Minister 
Aliyev's own remarks.  Thus, the USG was not attempting to 
impose benchmarks, but rather to react to, and even accept, 
what the GOK itself had proposed. 
 
Tokayev: "Only the U.S." Has Proposed 2011 
------------------------------------------ 
 
4. (C) Several times during the conversation Tokayev 
reiterated that Kazakhstan's bid had the support of a 
"majority" of OSCE members, even an "overwhelming" majority. 
"We have no right to reject the support of the countries that 
have offered it," he said, and "we still believe Kazakhstan 
deserves to be supported in 2009."  The Executive Secretariat 
of the CIS, he mentioned, would "make another appeal in 
December" supporting Kazakhstan's candidacy.  Tokayev also 
emphasized that "only the U.S." had proposed 2011 as an 
alternative to 2009.  "No other OSCE country has done so," he 
observed. Summing up the GOK position, Tokayev said that 
"there is no reason for us to renounce our application (for 
the 2009 CiO)." 
 
Tokayev to Address Non-Paper in Vienna 
-------------------------------------- 
 
5. (C) Tokayev informed the Ambassador "in a friendly way" 
that he intended to "address" the non-paper proposal in his 
October 27th address to the OSCE Permanent Council in Vienna. 
 (Note: Tokayev plans to depart Kazakhstan for Vienna on 
October 26. End Note.) 
 
 
December OSCE Ministerial: Better to Defer than Disagree? 
--------------------------------------------- ------------ 
 
6. (C) Tokayev acknowledged that, despite what he termed 
"overwhelming" OSCE-member support for Kazakhstan's 2009 bid, 
 OSCE rules made it clear that "we need a consensus" to 
resolve the issue.  At the December OSCE Ministerial meeting, 
he said, there would be "only two options -- 2009 and 2011." 
While the GOK would "continue to insist" on 2009, he 
explained, if no consensus could be reached, "the whole issue 
can be postponed until 2007," at which time a final decision 
could be made based on an evaluation of Kazakhstan's 
intervening progress on political reform.  In the case of 
continued opposition to Kazakhstan's candidacy, he concluded, 
"the best decision is no decision." 
 
GOK Will Not Veto Another Country's Candidacy 
 
ASTANA 00000280  002 OF 002 
 
 
--------------------------------------------- 
 
7. (C) Tokayev mentioned that the GOK "had heard of" Greece's 
possible candidacy for the 2009 CiO.  That proposal "wouldn't 
be so good," Tokayev remarked, citing the fact that Greece 
had not mounted a campaign for the CiO.  However, although 
the GOK had the right to block any country's candidacy, he 
said, we "won't do it."  On the CiO issue, Tokayev reported 
to Ambassador Ordway, he had told Belgian Foreign Minister 
Karel de Gucht that "we are not interested in creating fault 
lines" within the OSCE. 
 
Affirming the Need to Implem
ent Political Reform 
--------------------------------------------- --- 
 
8. (C) Tokayev affirmed that, notwithstanding the GOK 
objection to preconditions to its CiO bid, "we strongly 
believe we have to make progress in political reforms." 
Toward that end, President Nazarbayev would make a "special 
statement" on democratic reform, perhaps early in 2007.  At 
roughly the same time, the GOK would begin to undertake 
reforms, to include "changing the role of Parliament," and 
"changing the function of Deputies." 
ORDWAY

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