VZCZCXRO2577
PP RUEHAST RUEHBI RUEHCI RUEHLH RUEHLN RUEHPW RUEHVK RUEHYG
DE RUEHTA #0281/01 0390229
ZNR UUUUU ZZH
P 080229Z FEB 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 1735
INFO RUCNCIS/CIS COLLECTIVE 0389
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE

UNCLAS SECTION 01 OF 03 ASTANA 000281 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SCA/CEN - MARTY O'MARA 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EPET KZ
 
SUBJECT: SCENESETTER FOR SCA ASSISTANT SECRETARY BOUCHER'S VISIT TO 
KAZAKHSTAN 
 
Summary 
------- 
 
¶1. (SBU) Summary:  Your trip to Kazakhstan follows January visits 
from Senator Lugar, Eurasian Energy Diplomacy Coordinator Mann, and 
Acting Principal Deputy Assistant Secretary of Defense for Central 
Asia Shivers.  The steady traffic of high-level visitors to and from 
Kazakhstan (Prime Minister Masimov is expected to travel to 
Washington in March) reflects the healthy state of U.S.-Kazakhstan 
relations.  Kazakhstan is a reliable security partner and a steady 
influence in a turbulent region.  The country is proud of its 
achievements -- a thriving economy, a rapidly expanding capital 
city, a largely harmonious multi-ethnic society -- and is 
increasingly confident on the international stage.  The pace of 
democratic development has been slower, with political institutions, 
civic society, and the independent media still underdeveloped.  End 
Summary. 
 
Political Context 
------------------ 
 
¶2. (SBU) In Parliamentary elections held last August 19, the ruling 
Nur Otan Party received 88% of the vote.  No other party broke the 
7% threshold necessary to win seats in Parliament.  The OSCE/ODIHR 
International Election Observation Mission concluded that the 
elections fell short of the OSCE standards, noting "welcome progress 
in the pre-election process and during the conduct of the vote" but 
that "a number of OSCE commitments and Council of Europe standards 
were not met, in particular with regard to elements of the new legal 
framework and to the vote count."  The pre-election period was 
relatively good, with all parties having adequate access to the 
electorate. Voting proceeded smoothly.  The major problems developed 
during counting and aggregation.  That said, the single party 
parliament is as much a result of the opposition parties' failure to 
gain political traction as it was a result of vote manipulation. 
The opposition has continued to struggle to enunciate a clear 
message post-election. 
 
¶3. (SBU) When Kazakhstan was selected as OSCE Chairman-in-Office for 
2010 at the Madrid OSCE ministerial in November, Foreign Minister 
Tazhin publicly committed that Kazakhstan would amend its election 
and media laws to better meet international standards and liberalize 
registration procedures for political parties and media outlets by 
the end of 2008.  He also publicly stated that Kazakhstan would 
support the OSCE's human dimension and preserve the mandate of the 
OSCE's Office of Democratic Institutions and Human Rights (ODIHR). 
In January, the Central Election Committee (CEC) requested that 
political parties, including opposition parties, provide 
recommendations for election law amendments.  The main opposition 
parties, including True Ak Khol, the National Social Democracy Party 
(OSDP), and the Communist Party, recently responded to the CEC with 
their own proposals.  The CEC is now beginning a series of working 
group meetings, with invitations to the political parties, to 
discuss possible amendments. 
 
Consistent Economic Growth 
-------------------------- 
 
¶4. (SBU) Kazakhstan is the region's economic powerhouse, with an 
economy larger than those of all the other Central Asian states 
combined (2006 GDP: $68 billion).  The economy has averaged 9.2% 
real growth over the past three years, and the percentage of 
Kazakhstan's population living below the level of subsistence 
dropped from 28.4% in 2001 to 9.8% 
in 2005.  The energy sector is the dominant earner, with oil exports 
accounting for roughly a third of GDP. 
 
¶5. (SBU) Short-term challenges remain.  In November, 
year-on-year inflation hit 17.5 percent, propelled by 
soaring food prices (up nearly 25 percent year-on-year). This 
remains a politically sensitive issue. During the Fall of 2007, the 
price of bread rose 30% in two months.  According to one private 
sector analyst, on average 40 percent of household expenditures are 
spent on food.  The government announced at the end of 2007 a $4 
billion package to mitigate the domestic effects of the global 
financial crisis.  The money is to be disbursed via Kazyna's 
Development Bank of Kazakhstan and injected into the banking system 
as deposits in the accounts of participating commercial banks. 
 
An Emerging Energy Power 
--------------------------- 
 
¶6. (SBU) Kazakhstan produced 55.5 million tons of crude oil in 2007 
and is expected to become a top ten oil producer soon after 2015. 
The Tengiz field is expected to produce 540,000 barrels per day by 
the second half of this year after its latest stage of expansion 
comes on line.  The huge Kashagan field has estimated reserves of 13 
 
ASTANA 00000281  002 OF 003 
 
 
billion barrels, although full production is unlikely to begin until 
2015 at the very earliest.  Kazakhstan also possesses substantial 
proven gas reserves (3 billion cubic meters), though there is 
currently very limited gas available for export.  At Tengiz, for 
example, most gas is reinjected into the reservoir to maximize 
long-term crude production. 
 
¶7. (SBU) The U.S is encouraging the Kazakhstan to diversify its oil 
and gas export routes.  Currently, the bulk of Kazakhstan's crude is 
exported via Russia, both through the Transneft system and the 
independent Caspian Pipeline Consortium (CPC).  In the absence of a 
CPC expansion, most of Kazakhstan's near term oil production 
increases are likely to flow to market by rail through Russia, or by 
tanker across the Caspian to Baku (and from there through 
Baku-Tbilisi-Ceyhan or to Batumi or Supsa on the Black Sea.).  All 
of Kazakhstan's gas exports currently flow through Russia.  In 
December, Kazakhstan, Turkmenistan, and Russia signed an agreement 
to build the "Prikaspiysky" gas pipeline, intended to carry gas from 
Kazakhstan and Turkmenistan north through Russia.  The GOK insists 
trans-Caspian oil and gas pipelines will be difficult to build 
without a five-country agreement on delimitation of the Caspian 
Sea. 
 
¶8. (SBU) Kazakhstan has grown increasingly assertive in its energy 
sector, reexamining the terms of existing agreements, driving a 
harder bargain with prospective investors, and aggressively pursuing 
environmental and tax claims against international oil companies. 
In October, President Nazarbayev signed into law an amendment to the 
"Law on Subsoil and Subsoil Use" which gives the Government of 
Kazakhstan the power to terminate a subsoil use contract if it 
determines that the contractor's actions violate the national 
economic security interests of the country.  Only a "limited list of 
strategic objects" will be subject to the amendment, but the GOK has 
not yet made any such list public. President Nazarbayev has publicly 
stated that the amendments will not be used to change existing 
contracts.  In January, Kazakhstan and the foreign consortium 
partners reached agreement on renegotiating the terms of the 
Kashagan contract, as a result of which Kazakhstan's state oil and 
gas company, KazMunaiGaz (KMG), will get an increased equity stake 
in the project, financial compensation for delays in project 
development, and an enhanced role in project operations.  (Note: 
The subsoil amendments were not/not applied in the Kashagan case. 
End Note.) 
 
Security 
-------- 
 
¶9. (SBU) Kazakhstan has cooperated extensively with the United 
States in the Global War on Terrorism.  Kazakhstan has directly 
supported efforts in Iraq by deploying a military engineer unit 
which has disposed of over 4.5 million pieces of ordnance. 
Kazakhstan has provided over 6000 cost-free overflight and emergency 
landing rights for U.S. aircraft supporting Operation Enduring 
Freedom.  The GOK has indicated that it would like to deploy its 
KAZBRIG unit for a peacekeeping operation, although no commitments 
have yet been made. The GOK has also issued strong statements in 
support of U.N. resolutions sanctioning Iran and North Korea. 
 
¶10. (SBU) In December, the U.S. and Kazakhstan extended the 
bilateral Cooperative Threat Reduction (CTR) umbrella agreement for 
seven additional years. The GOK must still ratify it.  The CTR 
agreement has facilitated successful bilateral efforts to eliminate 
the Stepnogorsk anthrax weapons production facility, dismantle 
Kazakhstan's intercontinental ballistic missile launchers, and close 
194 nuclear weapons test tunnels and boreholes at the former Soviet 
nuclear test site in Semipalatinsk.  Several important programs are 
ongoing, most notably the effort to secure and store spent nuclear 
fuel from the closed BN-350 plutonium production reactor in Aktau. 
 
Regional Relations 
------------------ 
 
¶11. (SBU) The GOK has stated its willingness to play an enhanced 
role in achieving regional integration.  Kazakhstan adopted an 
action plan for Afghanistan under which it will provide $2.880 
million in assistance in 2008.  The funds are to be spent on food 
and agricultural seed aid and for construction of a school, 
hospital, and possibly a road.  The Kazakhstanis, however, are 
discouraged about prospects for private sector investment following 
a failed attempt to win a tender for an Afghan copper mine, as well 
as other unsuccessful commercial approaches to the Afghans. 
¶12. (SBU) Kazakhstan continues to deftly balance relations with 
Russia, China, and the U.S.  Social, cultural and personal links 
help provide Russia an unmatched influence in Kazakhstan. 
Presidents Putin and Nazarbayev have met more than 15 times over the 
last two years. Kazakhstan's population is approximately one-third 
ethnic Russian.  Russian remains the dominant language of the 
 
ASTANA 00000281  003 OF 003 
 
 
country, the most popular TV stations provide a heavy diet of 
programming from Russia, and the most widely-read newspapers cover 
events in Russia closely (and rarely unfavorably). 
¶13. (SBU) Relations with China have strengthened as fears of Chinese 
encroachment have largely disappeared.  Kazakhstan-China trade grew 
by 66% in 2007.  China is also a major player in Kazakhstan's energy 
sector.  A Kazakhstan-China oil pipeline, Atasu-Alashankou, has an 
annual capacity of ten million tons of crude, with capacity to 
double when the second segment of the pipeline is launched. During 
2008-09, a gas pipeline with an annual capacity of 40 billion cubic 
meters will be laid from the Kazakh-Uzbek border to the 
Kazakh-Chinese border. 
ORDWAY