VZCZCXRO3815
OO RUEHAST RUEHBI RUEHCI RUEHLH RUEHLN RUEHPW RUEHVK RUEHYG
DE RUEHTA #1158/01 1720516
ZNR UUUUU ZZH
O 200516Z JUN 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2644
INFO RUCNCIS/CIS COLLECTIVE 0530
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE

UNCLAS SECTION 01 OF 03 ASTANA 001158 
 
SENSITIVE 
SIPDIS 
 
H PLEASE PASS TO CODEL HASTINGS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON OSCE OVIP OTRA KZ
 
SUBJECT: SCENESETTER FOR CODEL HASTINGS'S VISIT TO KAZAKHSTAN FOR 
THE OSCE PARLIAMENTARY ASSEMBLY 
 
------- 
Summary 
------- 
 
¶1. (SBU) Your visit to Kazakhstan for the annual session of the OSCE 
Parliamentary Assembly comes at a particularly opportune time.  With 
its recent selection as 2010 OSCE chairman and thriving energy 
sector, Kazakhstan is showing increasing confidence on the 
international stage.  The country is rightly proud of its 
achievements:  a booming economy, largely harmonious multi-ethnic 
society, and rapidly expanding national capital.  You will see on 
arrival that the government is making preparations to celebrate 
Astana's 10th anniversary as Kazakhstan's capital on July 6 (which 
is also President Nazarbayev's 68th birthday) with gala festivities 
that will likely be attended by Russian President Medvedev and 
several other foreign heads of state. 
 
¶2. (SBU) Kazakhstan has proven to be a reliable security partner and 
a steady influence in a turbulent region.  The pace of democratic 
reform, however, has been slow, with political institutions, civil 
society, and the independent media still underdeveloped.  Our 
fundamental strategic objective is a secure, democratic, and 
prosperous Kazakhstan that embraces market competition and the rule 
of law; continues partnering with us on the global threats of 
terrorism, WMD proliferation, and narco-trafficking; and develops 
its energy resources in a manner that bolsters global energy 
security.  We would welcome your assistance in underlining to your 
Kazakhstani interlocutors the importance of: 
 
-- following through on the democratic reform commitments Kazakhstan 
made when selected to be 2010 OSCE chairman 
 
-- adhering to Kazakhstan's OSCE obligations regarding freedom of 
religion and freedom of the press 
 
-- continuing Kazakhstan's strong support for Coalition efforts in 
Afghanistan 
 
--------------------------------------------- ----- 
Strong Growth, But Short- and Long-Term Challenges 
--------------------------------------------- ----- 
 
¶3. (SBU) Kazakhstan is the region's economic powerhouse, with an 
economy larger than that of all the other Central Asian states 
combined.  Economic growth averaged 9.2% a year during 2005-07, and 
the percentage of the population living below the subsistence level 
dropped from 28% in 2001 to under 10% at present.  The energy sector 
is the dominant earner, with oil exports accounting for roughly a 
third of GDP.  In the long term, Kazakhstan must focus on 
diversifying its economy, building up non-extractive industries, 
agriculture, and the service sector.  In the short term, Kazakhstan 
is facing duel challenges of rising inflation, propelled by soaring 
international prices on food and agricultural commodities, and 
reduced economic growth, a reflection of the domestic impact of the 
global financial crisis.  The government imposed a temporary ban on 
wheat exports in April to ensure adequate domestic supply and to 
keep prices down on bread.  As Kazakhstan annually produces much 
more wheat than it consumes, we anticipate the ban will be lifted as 
early as August, once the next harvest comes in. 
 
------------------------ 
An Emerging Energy Power 
------------------------ 
 
¶4. (SBU) Kazakhstan exported just over 60 million tons of crude oil 
in 2007 and is expected to be one of the world's top ten oil 
producers soon after 2015.  The country also has significant natural 
gas reserves, but for now gas exports are relatively limited, in 
part because gas is being reinjected to maximize crude output.  U.S. 
companies have significant ownership shares in each of Kazakhstan's 
three major oil and gas projects:  Tengiz, Kashagan, and 
Karachaganak.  Tengiz (with 50% Chevron and 25% ExxonMobil stakes) 
recently inaugurated a second generation expansion which will 
increase its crude production from 400,000 barrels per day to 
540,000 later this year.  Kashagan (with 16.8% ExxonMobil and 8.4% 
ConocoPhilips stakes) is the largest oil field discovery since 
Alaska's North Slope and perhaps the world's most technically 
complex oil development project.  Kashagan is expected to commence 
production around 2012. 
 
¶5. (SBU) The Kazakhstanis recognize they do not have the capability 
to exploit their oil and gas resources on their own, especially 
given the complexity of Kazakhstan's oil and gas projects. 
Kazakhstan thus continues to welcome foreign investment in energy 
exploration and production, and both the Kazakhstani government and 
the international companies are committed to an enduring 
relationship.  That said, Kazakhstan has grown increasingly 
 
ASTANA 00001158  002 OF 003 
 
 
assertive in its energy sector in recent years, reexamining the 
terms of existing contracts, driving a harder bargain with 
prospective investors, and aggressively pursuing environmental and 
tax claims against international oil companies. 
 
¶6. (SBU) With major production increases on the horizon, Kazakhstan 
must develop additional transport routes to bring its oil and gas to 
market.  Our policy is to encourage Kazakhstan to seek diverse 
routes, which will ensure the country's independence from transport 
monopolists.  Currently, the bulk of Kazakhstan's crude oil is 
exported via Russia, including through the Transneft system and the 
independently-owned Caspian Pipeline Consortium (CPC) pipeline. 
Near-term crude production increases are likely to flow by rail 
through Russia, by tanker across the Caspian Sea to Baku, and 
through the CPC pipeline, should an agreement be reached with Russia 
on CPC expansion.  We believe that a trans-Caspian oil pipeline must 
be built to handle later production growth; however, Kazakhstan is 
reluctant to openly pursue this option in the absence of an 
agreement on delimitation of the Caspian Sea among the five Caspian 
littoral states. 
 
--------------------------- 
Democratic Development Lags 
--------------------------- 
 
¶7. (SBU) While the Kazakhstani government articulates a strategic 
vision of democracy, it has lagged on the implementation front. 
This in part reflects the political reality that President 
Nazarbayev remains extraordinarily popular, while the opposition is 
weak and fractured.  It also is a result of the government's 
resistance to competitive political processes.  In May 2007, 
significant amendments were adopted to Kazakhstan's constitution 
which were touted as strengthening parliament, but also removed 
terms limits on Nazarbayev.  In parliamentary elections held in 
August 2007, Nazarbayev's Nur Otan party officially received 88 
percent of the vote and took all the seats in parliament.  The OSCE 
election observation mission concluded that the elections did not 
meet OSCE standards. 
 
¶8. (SBU) When Kazakhstan was selected as 2010 OSCE chairman at the 
November 2007 OSCE Madrid ministerial meeting, Foreign Minister 
Tazhin publicly committed that his country would undertake several 
democratic reforms.  Specifically, he promised that by the end of 
2008, Kazakhstan would amend its election and media legislation 
taking into account the recommendations of the OSCE's Office of 
Democratic Institutions and Human Rights (ODIHR), as well as 
liberalize registration procedures for political parties and media 
outlets.  (Note:  Tazhin also promised that Kazakhstan would support 
the OSCE's "human dimension" and preserve ODIHR's mandate, including 
its critical role in election observation.  End Note.)  The 
government has thus far taken limited steps toward implementing its 
"Madrid commitments," including establishing working groups, with 
civil society and opposition participation, to discuss amendments to 
the election and media legislation.  Though much work remains, there 
is sufficient time for Kazakhstan to follow through by year's end -- 
and we have been repeatedly reassured by the government that it will 
do so.  We have made clear that reneging on the commitments would 
undermine Kazakhstan's effectiveness as future OSCE chair. 
 
----------------------------------------- 
Concerns on the Media and Religion Fronts 
----------------------------------------- 
 
¶9. (SBU) While Kazakhstan's diverse print media includes a plethora 
of newspapers sharply critical of the government and of President 
Nazarbayev personally, the broadcast media is almost exclusively in 
government hands and maintains a pro-government line, with little 
coverage of opposition parties.  The government apparently blocked 
several opposition websites in late 2007 for uploading recordings of 
embarrassing conversations between senior government officials. (The 
recordings were likely made by Nazarbayev's former son-in-law, 
Rakhat Aliyev, who was recently convicted in absentia of plotting a 
coup.)  Access has not been restored to all of these sites.  In 
April, the English- and Kazakh-language websites of Radio Free 
Europe/Radio Liberty (RFE/RL) became inaccessible to customers of 
state-owned Kazakhtelecom.  We raised the RFE/RL issue with senior 
officials.  The government did not admit to actively blocking the 
RFE/RL websites, but they subsequently became accessible again in 
early June. 
 
¶10. (SBU) While Kazakhstan prides itself on its religious tolerance, 
so-called "non-traditional" religious groups -- such as evangelical 
Protestants, Jehovah's Witnesses, Hare Krishnas, and Scientologists 
-- have faced difficulties.  There has recently been a significant 
increase in negative media coverage of non-traditional religions 
which appears to have been orchestrated in part by the government. 
The Kazakhstani parliament is currently considering a package of 
 
ASTANA 00001158  003.2 OF 003 
 
 
amendments to the country's religion law which would assert greater 
government control over non-traditional groups.  While the latest 
draft text represents an improvement over the original version, it 
retains several problematic provisions, including ones that would 
create a distinction between large and small religious groups, 
limiting the rights of the latter.  At the urging of the U.S. and 
our OSCE partners, Kazakhstan submitted the legislation for ODIHR 
review.  We want to ensure that Kazakhstan takes into account 
ODIHR's recommendation in the final version -- as senior Kazakhstani 
officials have promised us they will do. 
 
-------------------- 
Afghanistan and Iraq 
-------------------- 
 
¶11. (SBU) Kazakhstan is an important partner for Afghanistan's 
Operation Enduring Freedom (OEF).  To date, Kazakhstan has 
facilitated over 4000 cost-free overflights for U.S. military 
aircraft supporting OEF.  Kazakhstan is also providing Afghanistan 
with $2.88 million in assistance in 2008, which is being used for 
food and seed aid and to construct a hospital, school, and road. 
The Kazakhstanis are encouraging their private sector to seek out 
investment opportunities in Afghanistan, and have indicated that 
they want to make Afghanistan a focal point for their OSCE 
chairmanship.  In addition, Kazakhstan is the sole Central Asian 
country participating in Operation Iraqi Freedom (OIF).  Since 
August 2003, the Kazakhstanis have maintained a military engineering 
unit in Iraq which has disposed of over 4.5 million pieces of 
unexploded ordnance. 
 
----------------------------- 
Non-Proliferation Cooperation 
----------------------------- 
 
¶12. (SBU) Non-proliferation cooperation has been a hallmark of our 
bilateral relationship since Kazakhstan became independent and 
agreed to give up the nuclear arsenal it inherited from the USSR. 
Our bilateral Cooperative Threat Reduction (CTR) program has 
facilitated the dismantlement of Kazakhstan's intercontinental 
ballistic missile launchers, closure of test tunnels and boreholes 
at the former Soviet nuclear test site in Semipalatinsk, and 
elimination of an anthrax weapons production facility.  Several 
critical CTR programs are ongoing, including the effort to secure 
and store spent fuel from a closed plutonium production reactor, as 
well as a biological threat reduction program aimed at ensuring 
effective control of dangerous pathogens.  In December 2007, the 
U.S. and Kazakhstan agreed to extend our bilateral umbrella 
agreement for the CTR program for an additional seven years. 
However, the Kazakhstanis have not yet ratified the extension.  In 
the interim, we have faced difficulties in receiving the tax and 
customs exemptions necessary for us to continue uninterrupted 
implementation of the CTR program. 
 
ORDWAY