VZCZCXRO6499
RR RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHPW
DE RUEHTA #1650 1661027
ZNR UUUUU ZZH
R 151027Z JUN 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 9813
INFO RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE

UNCLAS ASTANA 001650 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SCA/CEN - O'MARA; 
 
E.O. 12958: N/A 
TAGS: EINV ECON ETRD ENRG KIDE KZ
SUBJECT: KAZAKHSTAN: 2007 INVESTMENT DISPUTES REPORT UPDATE 
 
REF: State 55422 
 
 
¶1. (SBU) This cable responds to reftel.  The United States 
Government is aware of two (2) claims by United States persons that 
are outstanding against the Government of Kazakhstan (GOK). 
 
¶2. (SBU) a. Claimant A 
 
b. 1996 
 
c. Although it has faced a number of regulatory issues, Claimant A 
is currently dealing with two disputes that may rise to the level of 
expropriation. 
 
Claimant A's dispute on electricity deliveries with the state-owned 
power transmission monopoly (now known as KEGOC) and the Government 
of Kazakhstan (GOK) dates back to 1996.  Claimant A ultimately 
signed two memoranda of understanding (MOUs) with KEGOC and the GOK, 
outlining how the dispute would be resolved.  However, the claimant 
states, as of early June 2007, KEGOC continues to be in breach of 
some of the contracts arising from the MOUs.  According to Claimant 
A, this contractual breach by KEGOC amounts to contract repudiation. 
 Although KEGOC and the GOK have submitted to international 
arbitration (which is currently ongoing), Claimant A is concerned 
that KEGOC may not comply with the arbitration decisions. 
Furthermore, Claimant A states that KEGOC has, on numerous 
occasions, used underhanded methods to pressure the Claimant.  Such 
actions often involve making it difficult for third parties to 
conduct business with Claimant A. 
 
Claimant A states that discriminatory regulatory actions by regional 
authorities also amount to expropriation.  According to the 
Claimant, a regional government - with the support of some officials 
in the central government - has forced the Claimant to choose 
between lowering its rates (which would be politically expedient to 
the local authorities) or facing severe regulatory actions. 
Claimant A maintains that this is an example of tactics, which 
sometimes include threats of criminal prosecution, to extract 
financial benefits from the Claimant. 
 
 
¶3. (SBU) a. Claimant B 
 
b. 2001 
 
c. In July 2001, the Kazakhstan Ministry of State Revenue (MSR) 
performed an audit and determined that Claimant B, a subsidiary of a 
U.S. parent company, owed $29 million in taxes.   The assessment was 
based on MSR's finding that $100 million received by the Claimant 
from a customer as reimbursement for capital expenditures incurred 
by claimant in modifying a barge rig, was taxable income.   (The 
customer was the operating consortium of the offshore Kashagan oil 
field.)  Claimant B challenged the decision in Astana City Court, 
which ruled in the claimant's favor, holding that the reimbursements 
were not, in fact, taxable income.  Following an appeal by the MSR, 
Kazakhstan's Supreme Court ruled in favor of claimant in March 2002. 
 
 
The Kazakhstani tax authorities have persisted in appealing the case 
in subsequent years, bringing the case to the Supreme Court a total 
of four times.  In May 2006, the Supreme Court ruled in favor of the 
Kazakhstani tax authorities.  Claimant B subsequently contacted the 
USG.  In early June 2006, the Claimant's attorneys had successfully 
filed a stay of the collection process triggered by the Supreme 
Court decision, and were planning an appeal.  In April 2007, the 
Kazakhstani Supreme Court granted to Claimant B a Supervisory Panel 
Appeal.  As of early June 2007, Claimant B is awaiting the 
consideration of its appeal by the court. 
 
¶4. (SBU) Claimant A:  AES Corp. 
 
Claimant B:  Parker Drilling, Inc. 
 
ORDWAY