VZCZCXRO9299
PP RUEHDBU
DE RUEHKB #0651/01 1210256
ZNY CCCCC ZZH
P 010256Z MAY 06
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 0249
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 1592
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHMFISS/CDR USEUCOM VAIHINGEN GE PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEKDIA/DIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
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C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000651 
 
SIPDIS 
 
SIPDIS 
 
USDOE FOR FE - SWIFT AND OS - WILLIAMSON 
 
E.O. 12958: DECL: 05/01/2016 
TAGS: EPET ENRG PREL AJ TX KZ
SUBJECT: AZERBAIJANI VIEWS OF THE KAZAKHSTAN-AZERBAIJAN 
OIL-TRANSPORT NEGOTIATIONS 
 
REF: BAKU 368 
 
Classified By: acting DCM Joan A. Polaschik, reasons 1.4 (b), (d) and ( 
e). 
 
¶1. (C) SUMMARY.  Conversations with senior Azerbaijani 
official Samir Sharifov and SOCAR Vice President Elshad 
Nasirov reveal that the GOAJ is pushing for a focused and 
non-ambiguous Inter-Governmental Agreement for oil transport 
from Kazakhstan.  Sharifov, somewhat mistrustful of 
Kazakhstan, wants the agreement to spell matters out as much 
as possible -- specifying Kashagan as the source field and 
BTC as the route, and dedicating new maritime infrastructure 
exclusively to the project.  Nasirov agreed, adding that 
taxation issues still had to be worked out and that 
international investors would be allowed to own only the 
vessels dedicated excusively to the project.  Both Sharifov 
and Nasirov emphasized that they saw no need to sign an 
agreement hastily and that they were willing to take the time 
necessary to get what they want.  They also believe that 
while final agreement will not be achieved during the talks 
with Kazakhstan this month, final agreement is not very far 
away as the two sides are fairly close. 
END SUMMARY. 
 
---------------------- 
SHARIFOV: NO AMBIGUITY 
---------------------- 
 
¶2. (C) Energy Officer met with Samir Sharifov on April 17. 
Sharifov at that time was director of the State Oil Fund; he 
very shortly thereafter became Minister of Finance.  Sharifov 
has been playing a more and more influential role on energy 
policy issues over time.  Overall, Sharifov is wary of 
Kazakhstan as a partner and wants the IGA to contain clear 
and unambiguous positions.  "We need to know how serious our 
partner is," said Sharifov with a shrug.  Commitments need to 
be clear, he argued.  The emerging IGA is much more specific 
than the draft from last year, he noted, and for that reason 
will be a much better deal for Azerbaijan and presumably 
Kazakhstan as well. 
 
¶3. (C) Sharifov identified three areas still under discussion 
between the two countries in the current draft IGA.  Echoing 
reftel, Sharifov said that he wants the IGA to specify BTC as 
the transport route for the Kazakhstan oil to be transported 
to Azerbaijan.  This is now the GOAJ position, said Sharifov, 
and he feels Kazakhstan will agree to it.  Sharifov points 
out that BTC is really the only route for this oil anyway -- 
the Baku-Novorossisk pipeline is restricted to Azerbaijani 
oil and Baku-Supsa is restricted to ACG producers.  The only 
transporter left other than BTC is railway transportation, 
and Sharifov asserts that giving Kazakhstan a privileged 
position in the rail corridor would violate the Energy 
Charter.  For these reasons, Sharifov feels this point of 
contention will quickly pass. 
 
¶4. (C) Sharifov also wants the IGA to specify the Kashagan 
field as the source for the oil.  Sharifov noted that under 
the current draft, the IGA applies to the port of Kurik in 
Kazakhstan only in regards to its shipping oil to Azerbaijan, 
leaving open the possibility that this new port could engage 
in other activities.  Sharifov wants the port to be dedicated 
exclusively to the trans-Caspian project.  Both issues relate 
to a larger point -- Sharifov wants to make the IGA as 
focused and as specific as possible.  "We need to know how 
serious our partner is," he repeated.  Many argue that the 
IGA must be completed very soon in order to give enough time 
for the necessary infrastructure to be put in place before 
Kashagan production begins in 2008.  Sharifov does not feel 
this is a hard deadline and believes it is important to take 
the time to ensure this deal is done right.  Sharifov added 
that he did not necessarily expect final agreement with 
Kazakhstan to come out of the talks taking place in April, 
but he fee 
ls the process is moving towards closure. 
 
--------------------------------------------- ---- 
NASIROV: DON'T FORGET TAXES, AND NO NEED TO HURRY 
 
BAKU 00000651  002 OF 002 
 
 
--------------------------------------------- ---- 
 
¶5. (C) Energy officer met with Elshad Nasirov, SOCAR Vice 
President for Marketing and Investment, on April 18.  Nasirov 
essentially agreed with Sharifov on the major outstanding 
issues.  In his view, whether the IGA designates BTC as the 
exclusive route for trans-shipped Kazakhstani oil is no 
longer an issue.  He added, however, that the tax structure 
for the project is still under discussion and will ultimately 
be settled through expert-level discussions.  When asked 
about who would actually own the ships built to transport the 
oil, Nasirov said that it is his understanding that the 
international partners will be allowed to own only those 
vessels "dedicated" to Kashagan transport. 
 
¶6. (C) Nasirov also echoed Sharifov's view that there is no 
need to "hurry" to complete the IGA and even spoke 
disparagingly of the "so-called delay" in the negotiations. 
Nasirov reaffirmed that the volume of oil expected from 
Kashagan will require new ships, and that the current 
infrastructure of state shipping monopoly CASPAR is not at a 
high enough standard for the job.  He also affirmed that the 
project will require new ports.  A slightly later signing of 
the IGA will indeed delay investment in new maritime 
infrastructure, but in Nasirov's view this won't really be an 
issue.  Nasirov argued that in 2008 there will only be 75,000 
tons of oil produced from Kashagan, rising to 175,000 only in 
¶2009.  Therefore, he said, the terminals and ships do not 
have to be 100 percent ready the day that Kashagan production 
begins.  If necessary, the oil can initially be transported 
via existing infrastructure. 
 
------- 
COMMENT 
------- 
 
¶7. (C) Shortly after these conversations, the delegation from 
Kazakhstan arrived in Baku for the next round of 
negotiations, which are still underway at the time of this 
writing.  Nasirov is deeply involved in the talks.  Sharifov 
was as well, and despite his sudden promotion to the Finance 
Ministry is still playing an important role.  In contrast to 
2005, it is clear that this time the Azerbaijani side is not 
in a hurry to get an agreement.  On the other hand, the 
Azerbaijani side seems to feel that the two sides are close 
enough to reach final agreement relatively soon. 
HYLAND