VZCZCXRO5876
PP RUEHDBU
DE RUEHTA #1401/01 1080454
ZNR UUUUU ZZH
P 180454Z APR 06
FM AMEMBASSY ALMATY
TO RUEHC/SECSTATE WASHDC PRIORITY 4965
RUEBAAA/DEPT OF ENERGY WASHDC PRIORITY
INFO RUEHMO/AMEMBASSY MOSCOW PRIORITY 1206
RUEHEK/AMEMBASSY BISHKEK 7504
RUEHAH/AMEMBASSY ASHGABAT 6946
RUEHIL/AMEMBASSY ISLAMABAD 2027
RUEHNT/AMEMBASSY TASHKENT 7470
RUEHDBU/AMEMBASSY DUSHANBE 1681
RUEHIT/AMCONSUL ISTANBUL 0723
RUEHBUL/AMEMBASSY KABUL 0160
RUEHSI/AMEMBASSY TBILISI 2191
RUEHKV/AMEMBASSY KIEV 2437

UNCLAS SECTION 01 OF 02 ALMATY 001401 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
DEPARTMENT FOR EB/ESC; SCA/FO (MANN); SCA/CEN (MUDGE) 
DEPARTMENT OF ENERGY FOR GETTO (DOE/SI); BURGESON (DOE/SI); 
WILLIAMSON (DOE/SI); HARBERT (DOE/PI); THOMPSON (PI-21) 
 
NSC FOR MERKEL 
 
E.O. 193056: N/A 
TAGS: PREL ECON ENRG ETRD KZ
SUBJECT:  KAZAKHSTAN: ENERGY MINISTER ON CPC EXPANSION, BTC- 
IGA, AND VIP VISIT 
 
¶1. (SBU) Summary:  Kazakhstan and Russia reached agreement 
on CPC expansion during President Nazarbayev's recent visit 
to Moscow, according to Energy Minister Izmukhambetov, but 
it remained to be seen whether the agreement would hold. 
Four very substantial issues remain to be resolved in the 
BTC IGA discussions.  Izmukhambetov expressed interest in 
meeting with Secretary Bodman at the upcoming World Energy 
Forum in Doha, Qatar.   The Minister signaled his support 
for a U.S.-sponsored feasibility study of a trans-Caspian 
gas pipeline, noting the political issues involved.  He 
hoped that such a pipeline would start in Kazakhstan, and 
voiced concerns that Turkmenistan might not be able to 
supply the required volumes due to a recent deal with China. 
He informed the Ambassador that Russia was pushing 
Kazakhstan to support the Bosphorus bypass and to export 
more oil via the Transneft system.   End summary. 
 
¶2. (SBU) In an April 17 meeting with the Ambassador, 
Minister of Energy and Mineral Resources Batkykoz 
Izmukhambetov provided details on the CPC expansion 
agreement reached with Russia.  During President 
Nazarbayev's March 31-April 3 visit to Moscow there had been 
a series of meetings with Energy Minister Khristenko and 
President Putin regarding Kazakhstan's proposed approach on 
tariffs and expenses.  After lengthy discussions, 
representatives of CPC-K and CPC-R signed an agreement 
endorsing the new approach; ministers also initialed a 
document.  Although this agreement should have resolved the 
last obstacle to CPC expansion, Izmukhambetov explained, 
some on the Russian side were now refusing to honor the 
terms of the deal.  It remained to be seen whether the 
agreement would hold. 
 
¶3. (SBU) Izmukhambetov told the Ambassador that Kazakhstan 
had also raised the question of changing CPC-R's status from 
a joint stock company ("AO") to an LLP ("TOO"), based on 
concerns expressed by Chevron.  There is an issue regarding 
the reorganization of CPC-R in order to comply with the new 
Russian law on joint stock companies.  Because Russian law 
prevented the government from participating in a TOO, 
however, Kazakhstan was unable to insist on the change. 
 
¶4. (SBU) Izmukhambetov asked whether Secretary Bodman would 
take part in the April 24-25 World Energy Forum in Doha, 
Qatar.  Izmukhambetov hoped to meet with Bodman and to get 
him together with Khristenko as well. 
 
¶5. (SBU) On the Baku-Tblisi-Ceyhan Intergovernmental 
Agreement (BTC-IGA), Izmukhambetov said that he expected to 
receive a proposal soon from the working group currently 
meeting in Baku.  He hoped to see the proposal before 
leaving for Qatar, as the next high-level meeting would take 
place in Baku April 27-28.  Izmukhambetov noted that four 
very substantial questions remain to be resolved; in these 
areas Azerbaijan's proposals do not conform to what was 
agreed earlier.  He said that the oil majors had 
participated in the discussions to date and shared the GOK's 
views almost completely. 
 
¶6. (SBU) The Ambassador raised the upcoming VIP visit and 
the list of possible related activities.  Izmukhambetov 
expressed support for the idea of a feasibility study for a 
trans-Caspian gas pipeline.  Such an export route was 
attractive for Kazakhstan because it was simpler than the 
other options and financially sound.  He also noted that 
only a western route got gas to world prices:  north and 
south lead to "monopolists."  He said that attempts to reach 
acceptable arrangements with Gazprom/GOR on transit, and the 
Orenburg processing deal, were stalled with no signs they 
would ever reach agreement.  Regarding the proposed trans- 
Caspian pipeline, Izmukhambetov concluded that the main 
question was political, i.e. how to obtain Russian and 
Iranian agreement to such an undertaking.  The Ambassador 
 
ALMATY 00001401  002 OF 002 
 
 
indicated that this question would be an important component 
of the feasibility study. 
 
¶7. (SBU) Izmukhambetov said that if he had the opportunity 
to meet with Secretary Bodman in Qatar, he would seek 
assurances that the U.S. favored a pipeline starting in 
Kazakhstan rather than Turkmenistan.  The Ambassador 
indicated that to the best of his knowledge that was the 
case.  He noted that volumes from Turkmenistan might be 
necessary to make the pipeline feasible.  Izmukhambetov 
concurred vigorously, claiming that as a result of a 
recently-announced deal with China, Turkmenistan had already 
considerably oversold its potential exports.  Izmukhambetov 
added that the announcement had referred to a gas pipeline 
running from Turkmenistan through Uzbekistan and Kazakhstan 
to China.  He commented that the GOK would have to "study 
such a proposal carefully, to put it mildly," before 
allowing transit through Kazakhstan.  He thought that 
ultimately Turkmenistan would prefer a simple export route 
across the Caspian using the existing pipeline to 
Kazakhstan.  Turkmenistan could face problems with China if 
it did not deliver the promised gas exports, however. 
Izmukhambetov indicated that he also hoped to discuss this 
issue with Secretary Bodman. 
 
¶8. (SBU) Izmukhambetov told the Ambassador that during the 
recent talks in Moscow, the Russian government sought 
Kazakhstan's agreement on the Burgas-Alexandroupolis 
Bosphorus bypass.  Chevron sought a 30% share in the 
project.  KMG was considering exporting 10 million barrels 
of crude annually through such a pipeline. 
 
¶9. (SBU) The Minister also expressed frustration with the 
Russian government's pressure on Kazakhstan to export higher 
volumes of crude through the Transneft system.  Without 
quality bank assurances, Izmukhambetov stressed, it made no 
sense to export high-quality oil from TCO, Kashagan, and 
Karachaganak via Transneft.  The GOK would not commit 
volumes to Transneft without quality bank provisions, he 
said. 
 
ORDWAY