VZCZCXRO9223
PP RUEHDBU
DE RUEHTA #1122/01 1170855
ZNY CCCCC ZZH
P 270855Z APR 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 9273
INFO RUCNCIS/CIS COLLECTIVE PRIORITY 0146
RUEHBJ/AMEMBASSY BEIJING PRIORITY 0001
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEBAAA/DEPT OF ENERGY WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 001122 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR SCA/CEN (M. O'MARA) 
 
E.O. 12958: DECL: 04/27/2017 
TAGS: ECON PREL EINV IQ KZ
SUBJECT: KAZAKHSTANIS TELL HOLBROOKE OF PLANS TO IMPROVE 
COMPETITIVENESS 
 
REF: A. 06 ALMATY 1153 
 
     ¶B. 06 ALMATY 256 
     ¶C. 06 ASTANA 573 
 
Classified By: Amb. John Ordway, reasons 1.4 (B) and (D). 
 
 ¶1. (C) Summary:  In a wide ranging conversation with the 
Ambassador and Richard Holbrooke, young Kazakhstani leaders 
discussed President Nazarbayev's efforts to empower 
Kazakhstani business to address the problems facing the 
country, including corruption.  One part of the plan is a new 
state holding company designed in part to break the 
telecommunications monopoly that is strangling the country's 
competitiveness.  Holbrooke also relayed to the Ambassador a 
warning from President Nazarbayev that the U.S. must not 
withdraw from Iraq before the situation is stabilized.  End 
summary. 
 
¶2.  (SBU) The Ambassador hosted a lunch in honor of Amb. 
Richard Holbrooke on April 21 in Astana.  Attendees included 
Nurlan Kapparov of KazInvest Bank and the Lancaster Group, 
Azamat Abdymomunov of the newly-created Samgau Holding 
Company, and Pol-Econ Chief (notetaker). 
 
------------------------------------- 
Nazarbayev Tasks Kazakhstani Business 
------------------------------------- 
 
¶3. (SBU) Kapparov reported that President Nazarbayev held a 
"groundbreaking discussion" on April 20 in Almaty with 
leading Kazakhstani businesses.  According to Kapparov, 
during the two and a half hour meeting Nazarbayev told the 
Kazakhstani business elite that it was time for them to help 
"build the nation that had brought them up."  Nazarbayev also 
said that it was time to address the problem of corruption 
that is hindering Kazakhstan's development.  Prime Minister 
Masimov is to implement the new program of public-private 
partnership, which will involve identifying 30 national 
champions and helping them succeed.  Kapparov described the 
initiative as an entirely new, "collaborative" approach on 
the part of the GOK, which used to simply lecture to business. 
 
¶4. (C) "Masimov will be the best Prime Minister in 
Kazakhstan's history," Kapparov predicted, due to his 
impressive management skills and proactive approach. 
Holbrooke observed that while Masimov is clearly talented and 
dynamic, the incompetence of the Kazakhstani bureaucracy 
forces him to "micromanage" issues that would be handled well 
below his level in a more mature government.  Kapparov 
concurred but predicted that the administrative reform 
project that Masimov has launched will improve the situation, 
and also give him grounds to change the current team of 
ministers.  Abdymomunov commented that the current cabinet is 
the "weakest" in recent memory. 
 
¶5. (SBU) Kapparov said that he is working on a project to 
clean up the Khorgos customs post on the border with China, 
infamous for its corruption (Ref A).  Kazakhstan had never 
done anything to construct the planned free trade area, he 
noted, while China had built an impressive complex of 
warehouses on its side.  Kapparov said that he was in 
discussions with major international logistics firms to get 
them to take over freight handling at the border.  Major 
multinational manufacturers such as Proctor and Gamble had 
expressed interest in sending goods from China to Moscow via 
Kazakhstan if rapid delivery times could be guaranteed. 
 
--------------------------------------------- ---- 
New Holding Company to Improve Telecommunications 
--------------------------------------------- ---- 
 
¶6. (C) Abdymomunov, who had been Deputy Minister of Education 
and Science until the previous week, explained that the 
Kazakhstani government had established the Samgau ("To Soar") 
Holding Company to manage and modernize the 
telecommunications sector.  The organization is so new that 
it does not yet have a charter or operating capital.  The 
original intent was for Samgau to take KazTelecom from Samruk 
Holding, but Samruk was strenuously resisting the change 
because KazTelecom is its most profitable firm by far.  "It 
brings in more profit than KazMunayGas," according to 
Abdymomunov, due to its monopolistic status and the fact that 
many of KMG's oil fields are decades old and suffer from 
falling production. 
 
¶7. (C) Abdymomunov said that if Samgau cannot wrest control 
of KazTelecom from Samruk, it will create a second national 
 
ASTANA 00001122  002 OF 002 
 
 
telecommunications firm to break the monopoly and spur 
competition.  Samgau will also control the GOK's shares in 
KazTransCom, KaTelCo, KazTeleRadio, and KazPost.  The GOK 
created the new holding company in order to address the 
telecommunications issues that are hindering Kazakhstan's 
competitiveness and diversification, Abdymomunov said. 
Deputy Head of the Presidential Administration Serik 
Burkitbayev will be chairman of the Samgau board of 
directors, an arrangement that Abdymomunov described as 
"possibly not quite legal" since the chair should be a member 
of government.  (Comment: Bending the rules is nothing new 
for Burkitbayev, perhaps best known to the USG for his 
involvement in the Byelkamit scandal, Ref B.  According to 
subsequent press reports Burkitbayev is also angling to have 
KazAeroNavigatsiya folded into Samgau.  End comment.) 
 
--------------------------------------------- ----- 
Nazarbayev to Holbrooke:  "U.S. Must Stay in Iraq" 
--------------------------------------------- ----- 
 
¶8.  (C) In a one-on-one conversation following the lunch, 
Holbrooke told the Ambassador that during their meeting in 
Almaty President Nazarbayev had stressed the importance of 
the U.S. remaining in Iraq.  Nazarbayev is convinced that a 
premature U.S. withdrawal would lead to widespread civil war 
in Iraq and chaos throughout the region, according to 
Holbrooke.  (Note:  Nazarbayev made the same point to the 
Ambassador in November; Ref C.) 
ORDWAY